This is a very controversial question and there are pros and cons
#ShutdownTheMarkets
** THREAD **
15' shutdown when the index falls 7%
15' again when it falls 13%
Shutdown for the day at -20%
Goal: Stop panic selling in the short term, not stop markets from going down midterm
Pricing things adequately provides valuable information to society as a whole (here’s Con #1)
In fact, the recent crash helped trigger the alert, convinced many that #coronavirus was serious
Shutdown during 4 days after 9/11
2 days after Hurricane Sandy (2012)
There's a couple more cases but you get the point
...but...
knowing the price of things (stocks) is actually crucial to coordinate action amidst emergencies (Con #2)
But it could also feed into the panic (Con #3)
You can’t shut down US markets without shutting down foreign markets too
(some stocks are listed on multiple markets across countries)
(1) the derivatives markets (whose value depends on the price on the underlying stocks, hence the term “derivative”)
(2) the credit markets (access to loans) because the two are interrelated as well
This is why stock markets did not shut down during the 2008 crisis and it was a good thing
(1) prevent bankruptcies
(2) boost consumer spending
both of which restore confidence
markets must be open to help gov't coordinate this type of action via the price mechanism
With businesses being shut down, there is not much we can “consume” with the cash injected to restore confidence
So "injecting liquidity" right now is like making cash rain above a bottomless well!
Meanwhile, many market players benefit from current market volatility and make millions
This isn’t too productive for society at this time (Pro #2)
(#oil price war between Russia and Saudi Arabia, anyone?)
This sucks balls and doesn’t help society either (Pro #3)
So the latter risks being disconnected from the former, with mostly speculators benefiting
So the argument that we need stock markets over the next 4-8 weeks for startups to be able to raise capital (#IPOs) is mostly bullshit
Even though I am a business school prof, I am not a stock markets expert
Just putting this out there before people get upset
Just tryin’ to brainstorm here😉
During WWI, the markets actually shut down for 4 months
(not because of Spanish flu pandemic)
This made sense then because the “goods and services” economy was on pause for a while **wait whaaat?!**
And we were at war
“We are at war”
He even said it 6 times ** I shit you not **
"a next major step might be to shut the stock markets to prevent a further, self-fuelling sell-off”
This guy is not random joker
He’s a stock markets expert (unlike me)
There are pros and cons to shutting down the stock markets
I counted three of each
(1) Be globally coordinated (by @IMFNews?) and concern all financial markets (not just stocks)
(2) Be clearly bounded in time to match the duration of the “goods and services” economy’s lockdown (say, 2 full weeks)
(4) Be leveraged to address the health emergency and (why not) work out a plan for firms that need to be nationalized
(unavoidable for some, let's face it, starting with airlines)
We're done here. Stay safe🙄