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The Case for a Market Liquidity Provider of Last Resort

Steven L. Schwarcz

Duke University - School of Law

February 27, 2009

Duke Law School Public Law & Legal Theory Paper No. 234

This short paper, prepared as a keynote address, explains why the credit crunch is fundamentally a story about financial markets, not banks. Its cause was a collapse of securitization and other debt markets, which have become major sources of financing for consumers and companies. Deprived of this financing, consumers have had difficulty purchasing homes and automobiles, and companies have had difficulty purchasing inventory and making capital investments, causing the real economy to shrink. This paper examines how these financial markets should be protected. Although already subject to many prescriptive regulatory protections, these markets evolve faster than regulation can adapt. The paper argues that a market liquidity provider of last resort is the most robust and cost-effective way to protect these financial markets when prescriptive regulation inevitably fails.

Number of Pages in PDF File: 13

Keywords: securitization, financial markets

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Date posted: February 19, 2009 ; Last revised: February 27, 2009

Suggested Citation

Schwarcz, Steven L., The Case for a Market Liquidity Provider of Last Resort (February 27, 2009). Duke Law School Public Law & Legal Theory Paper No. 234. Available at SSRN: http://ssrn.com/abstract=1346542 or http://dx.doi.org/10.2139/ssrn.1346542

Contact Information

Steven L. Schwarcz (Contact Author)
Duke University - School of Law ( email )
Box 90360
Duke School of Law
Durham, NC 27708
United States
919-613-7060 (Phone)
919-613-7231 (Fax)
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