Beyond transparency: Keynes liquidity dilemma
Back to Basics Series (2) Financial markets play a key role to provide investors with liquidity and hence enable them to move capital from low-productive savings to highly-productive investments: schooling, training, research, innovation. On the contrary, capital immobilization is a strong obstacle on investment in the real economy. Indeed nobody is willing to own a piece of a machine producing solar photovoltaic modules since it might not be easy to cash out part of this investment when needed. It is much easier to own a few shares of a listed company such as Applied Materials Inc (NASDAQ:AMAT) to contribute to green investments while being able to get back your money at any time provided that you accept an exposure to market risk and specific risks related to the company. Hence liquidity is useful. Yet it is somehow at this very precise point that liquidity becomes dangerous since it is a first transgression of reality: on one hand the real asset remains highly illiquid and on the ot...