liquids and solvents

Sometimes I wish I’d gone into economics instead of philosophy, not just because my salary might possibly have a few more zeroes on it, but because it strikes me that a background in finance might be a better tool for understanding the world than, say, metaphysics.

One of the more perplexing things I’ve read about the ongoing credit crisis is the claim that the fed’s efforts are doomed because they are trying to resolve a liquidity crisis, when what we actually have now is a solvency crisis. I don’t really know what that means.

This article in the FT yesterday is a decent explanation of what that means, how liquidity and solvency are related, and why the underlying problem is a form of market failure.

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