In the summer, I went to a talk by regulators,

who argued that a big problem they had was that financial institutions did not want to borrow money because of ‘stigma,’ which ended up making the liquidity problems worse.  So the regulators wanted to take away that stigma.

Fast forward to fall 2008, in which the government has ‘solved’ the stigma problem by making the deals better and apparently forcing some of the institutions to borrow money.

Now we know that some of then financial institutions had ‘rational expectations’ about the problems with taking money from the government. 🙂

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