Last Resort Quotes

“By contrast, in a liquidity crisis only one creditor can save the debtor: the government. There is no competitive market that offers emergency loans during a liquidity crisis. This means that the government can dictate terms. It can also neglect the interests of other stakeholders or discriminate among them for political reasons. The risk of abuse is far higher than it is in a normal bankruptcy.”
― Eric A. Posner, Last Resort: The Financial Crisis and the Future of Bailouts

“Provision of liquidity by the Fed is, conceptually, no different from the government’s willingness to enforce contract rights.”
― Eric A. Posner, Last Resort: The Financial Crisis and the Future of Bailouts

“If a systemic crisis occurs, the FDIC may rescue a bank in the non-least-cost-way—for example, by paying off creditors who are not covered by deposit insurance or keeping a bank temporarily alive when it is insolvent—when nonpayment of creditors or the bank’s failure would threaten the system.”
― Eric A. Posner, Last Resort: The Financial Crisis and the Future of Bailouts

“While the Fed is usually identified as the Lender of Last Resort (LLR) in the United States, the LLR function is actually shared by the Fed and FDIC.”
― Eric A. Posner, Last Resort: The Financial Crisis and the Future of Bailouts

“The fact that large, solvent, heavily regulated banks would not lend to each other—or would lend to each other only at historically unprecedented interest rate premiums—and not lend to each other even overnight, was persuasive evidence, universally accepted by policymakers, that the crisis was essentially one of illiquidity.”
― Eric A. Posner, Last Resort: The Financial Crisis and the Future of Bailouts

“Once it is recognized that the role of the state in a market economy is not only to enforce property and contract rights, but to ensure liquidity, then the bailout, properly understood, is no different from the enforcement of property rights. A host of legal consequences follow from this observation. This book gives an accounting of them.”
― Eric A. Posner, Last Resort: The Financial Crisis and the Future of Bailouts

“Fifth, while the current mood, reflected in the Dodd-Frank Act, is to limit the LLR’s powers, the right response is to increase them while subjecting the LLR to equal-treatment principles that restrict favoritism.”
― Eric A. Posner, Last Resort: The Financial Crisis and the Future of Bailouts