people brought back money as fast as they had taken it out on Saturday...
Understanding What Is Happening What is going on here is this: •
A recognition that there has been “irrational exuberance”: “the breaking of so many of these scheming stock company bubbles…”
•
A corresponding sudden fall in the risk tolerance of the private market—everybody thinks that financial assets are now very risky things to hold, and so desired investment at existing interest rates and output levels collapses…
•
The blue line moves down and to the left…
•
A fear that banks that are not well-capitalized like Pole, Thornton which had “been inexcusably imprudent in not keeping more cash in the House but relying on that credit in them which had never been shaken, and which would enable them to borrow whenever they pleased” will go bankrupt because of the fall in asset prices—and incur the further losses associated with bankruptcy…
•
And a further fall in risk tolerance—a run on the bank of Pole, Thornton…
•
Which causes a further fall in the risk tolerance of the private market…
•
And the blue line moves down and to the left some more…
•
And the velocity of money collapses...
Now this would be of no concern to anybody (except Pole, Thornton and its customers) were it not for the systemic consequences of this fall in
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