Advisor Insights

The Death of Liquidity

Ralph Wanger

The views expressed here are those of the author and do not necessarily reflect the views of Morningstar.

Financial markets are complicated because they have the aspects of a game, but a game that has a great many rules, and the rules keep changing. One of the most important rules of financial markets has been the principle of liquidity. In early times, financial transactions were between landowner and farmer. The landowner had all the power. The farmer could survive as long as crops were good, but when the crops failed, the farmer became a slave or serf and the landowner became a feudal lord. One example of this process took place about 3,000 years ago when the family of Jacob, pastoral sheep owners, migrated to Egypt to escape a drought. They ended up slaves in Egypt. You may have seen the movie.