The true source of liquidity in financial markets: Caveat Emptor column

Liquidity – its origins and effects – have long exercised investors, but one thing is certain: banks are not the main source of liquidity, despite what they would have us believe.

When playing the card game Bridge, if all four players open with “No bid”, you get to throw in the cards and re-deal the hand. In the credit markets you don’t get that option. Fifty no bids later you are still long, watching the value of your position deteriorate.

If there is one thing that perplexes investors more than any other feature of the markets, it is how liquidity is never there when most needed. The events of the past few weeks have done nothing to change this fact.

The reason for the