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The Times' Rorshach Geithner Story
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Sinking Animal Spirits
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Be Your Own Counterfeiter
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Being Tim Geithner
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Notes From a Press Conference Naif
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What Good is the News?
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Stressful Enough
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Not Regretting the Pound
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Introducing the New Ford Squeeze
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The Fool of Last Resort
The Fed is worried about a lack of liquidity in the credit markets. The Fed acts to make the markets more liquid. Is the Fed's action foolish? We hope so!
We like to think: "market -- trade -- liquidity -- good, etc.", forgetting the Glosten-Milgrom point that liquidity often rests upon the presence of fools.
If the problem is that there are too few fools in the market, it might make perfect sense for the Fed to step in as a fool of last resort. With any luck, once the Fed starts acting foolishly, other market participants will follow suit.
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