Dr Chris Muellerleile will deliver a paper on “Calming Finance: Market Capacity, Financial Infrastructure and the Tradeoffs of Liquidity” at Nottingham University’s School of Geography on Wednesday 14 October 2015; and at the Centre for Business in Society at Coventry University on Tuesday 27 October 2015.
To attend the seminars, please contact the respective departments.
For more information about the paper, please contact Chris at firstname.lastname@example.org
Regardless of the asset or commodity, market liquidity is sought after in both the financial industry and financial regulatory circles. Liquidity is considered a sign of market maturity and stability, and it is assumed to lower transaction costs and reduce volatility. The causes of financial market failure are always complex, but there is a common symptom—a loss of market liquidity. As such, the easiest short term treatment is the restoration of liquidity, and over the longer term the goal of regulators and market operators is often to build new liquidity enhancing technologies to prevent future crises. This paper argues that enhanced market liquidity comes with significant social and economic tradeoffs, not least the emergence of speculative derivatives markets that are inevitably layered on top of any liquid financial market. Drawing on economic geography, systems theory, and recent trends in automobile traffic engineering, the paper argues first that market liquidity is not absolute, but relative to the socio-technical makeup of any particular market (infra)structure. As such, the paper argues that market failure is not anomalous, but immanent, and furthermore the larger the market capacity, the larger the immanent failure. Second, it argues that regardless of the dangers of market failure and related macro-economic trauma, society can no longer afford the costs and tradeoffs of building larger and more complex financial market infrastructure. The paper’s modest conclusion is that efforts to regulate financial markets may be more successful if liquidity was framed not just as a benefit, but a tradeoff with significant costs.