Krugman on the crash

Hopfully, Times Select will shortly be free, but I found this from last Friday by Paul Krugman elsewhere:

Very Scary Things

Very Scary Things
By PAUL KRUGMAN
Op-Ed Columnist
The New York Times
August 10, 2007

....

What’s been happening in financial markets over the past few days is something that truly scares monetary economists: liquidity has dried up. That is, markets in stuff that is normally traded all the time — in particular, financial instruments backed by home mortgages — have shut down because there are no buyers.

This could turn out to be nothing more than a brief scare. At worst, however, it could cause a chain reaction of debt defaults.

....

But when liquidity dries up, the normal tools of policy lose much of their effectiveness. Reducing the cost of money doesn’t do much for borrowers if nobody is willing to make loans. Ensuring that banks have plenty of cash doesn’t do much if the cash stays in the banks’ vaults.

....

Let’s hope, then, that this crisis blows over as quickly as that of 1998. But I wouldn’t count on it.

Would someone please get him a Nobel?