Does The Federal Reserve
Understand The Loss Of
"Liquidity Safeguards"?
Fred Sheehan discusses the November 1999 Grant's Interest Rate Observer (of James Grant*) conference in which Michael Steinhardt, one of the best traders over the previous 3 decades did not buy the magical belief in the Federal Reserve after the Nasdaq composite rose 150% between October 1998 & November 1999 .. he did not think the Federal Reserve's leadership would be worth much when it was needed most .. he spoke about Wall Street's abandonment of controls, leadership & responsibility: "The liquidity safeguards, historically, were the specialists' books, the retail system, and the institutional liquidity providers in the major brokerage firms. They were the mechanisms that the stock exchange itself had provided, and they were all structured for a system where trading was a very, very small fraction of what we're seeing today. Now there are no specialists' books; there is no serious liquidity provided by brokerage firms; and the trading mechanisms of the exchange are hardly relevant to the sorts of volumes that exist today. So yes, the Federal Reserve, if you define that broad context of liquidity in a financial sense, does still exist, but in a securities market sense, none of the former ones do." .. that was 14 yrs ago - does the Federal Reserve today understand the consequences of the lost "liquidity safeguards"? .. Sheehan relates several observations on this.
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