Ownership and Liquidity

The business of the daily exchanging of existing financial titles to wealth that occurs in modern security markets absorbs a significant volume of human energy and attracts worldwide attention, yet the role of organized security markets and related institutions as the link between the desire to store wealth by households is only vaguely perceived in mainstream economic texts. The existence of a banking system and continuous well organized spot markets in titles to save and to own equity securities.

In a world of perfect foreknowledge, of course, there world be no need for continuous reevaluation of market value of existing titles and outstanding debt contracts that occurs in real world financial markets. In a world of actuarial certainly insurance markets could produce an actuarial certain market valuation for equities.

Organized security markets, however, are not insurance markets- nor do the financial intermediaries connecting savers and investors in these markets operate on actuarial principles. Some nonblank financial intermediaries have developed semi-privileged arrangements with the banking system and the central bank.

The existence of semi-privileged liquidity creating arrangements between some financial market intermediaries and the monetary authority either directly or indirectly has meant that under certain conditions...