Capital Chronicle blogger RJH Adam has alighted on Chuck Prince’s recent interview in the FT, noting:
This interview is perhaps the perfect tour d’horizon of the actual state of liquidity affairs from any big lender’s perspective: it may end badly but they are compelled to play.
Adam refers to this quote from the Citigroup chief executive:
When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing…The depth of the pools of liquidity is so much larger than it used to be that a disruptive event now needs to be much more disruptive than it used to be.
There is an alternative to Mr Prince’s belief that disruptive events now have to be much larger to really matter, Adam argues, suggesting that in an ever-wider global economy any given event simply lasts longer as the knock on effects work their way through the world system.
And abundant liquidity may initially mask rather than mitigate the discomfort of this process.
US subprime, Mr Prince’s disruptive example in the interview, is not a chaotic act but a symptom of the shifting US cycle. It is not discrete; and how hurtful it becomes is unlikely to be a straight function of liquidity levels.