“At some point, great liquidity, or the perception of it, may itself encourage more speculative trading, even in longer-term instruments. Presumably conservative institutional investors are tempted to turn over positions much more rapidly, at the expense of careful analysis of basic values. In the light of events, careful consideration of the benefits and possibly damaging consequences of increased liquidity has become the subject of new studies and commentary by economists and regulators. A consensus may be developing that beyond some point, little or no public benefit may be evident.”
John Bogle, the Vanguard Group founder said:
“Liquidity is partly a state of mind. Is there such a thing as too much liquidity that is misleading people into investment behavior that is damaging to the economy?”
John Bogle then added his opinion on liquidity:
“Samuel Johnson had a saying that Patriotism is the last refuge of the scoundrel. And I have an idea that liquidity is the last refuge of the scoundrel.”
“All this trading creates nothing, creates no value, in fact, subtracts from value.”
“IPOs and secondaries amount to about $200 billion per year, but last year we had $40 trillion of trading in the US securities. There is 200 times as much speculation as there is investment ... or investment accounts for 0.5% of the function of Wall Street.”
Lord Adair Turner, chairman of the FSA, questioned the value of “liquidity” in a 2010 speech :
“A reasonable judgement on the economic value added of increased liquidity does deliver benefits but subject to diminishing marginal utility, and the increased financial speculation required to deliver increased liquidity creates an increasing danger of destabilising herd and momentum effects, the larger pure financial activity becomes relative to underlying real economic activity.”
“At some point, great liquidity, or the perception of it, may itself encourage more speculative trading, even in longer-term instruments. Presumably conservative institutional investors are tempted to turn over positions much more rapidly, at the expense of careful analysis of basic values. In the light of events, careful consideration of the benefits and possibly damaging consequences of increased liquidity has become the subject of new studies and commentary by economists and regulators. A consensus may be developing that beyond some point, little or no public benefit may be evident.”
John Bogle, the Vanguard Group founder said:
“Liquidity is partly a state of mind. Is there such a thing as too much liquidity that is misleading people into investment behavior that is damaging to the economy?”
John Bogle then added his opinion on liquidity:
“Samuel Johnson had a saying that Patriotism is the last refuge of the scoundrel. And I have an idea that liquidity is the last refuge of the scoundrel.”
“All this trading creates nothing, creates no value, in fact, subtracts from value.”
“IPOs and secondaries amount to about $200 billion per year, but last year we had $40 trillion of trading in the US securities. There is 200 times as much speculation as there is investment ... or investment accounts for 0.5% of the function of Wall Street.”
Lord Adair Turner, chairman of the FSA, questioned the value of “liquidity” in a 2010 speech :
“A reasonable judgement on the economic value added of increased liquidity does deliver benefits but subject to diminishing marginal utility, and the increased financial speculation required to deliver increased liquidity creates an increasing danger of destabilising herd and momentum effects, the larger pure financial activity becomes relative to underlying real economic activity.”