7  The case for public intervention when markets collapse has been made in the light of the recent financial crisis in P. Bolton, T. Santos and J. Scheinkman, “Outside and Inside Liquidity,” Quarterly Journal of Economics, 2011; F. Heider, M. Hoerova and C. Holthausen, “Liquidity Hoarding and Interbank Market Spreads: The Role of Counterparty Risk,” European Central Bank Working Paper 1126, 2009.
For public intervention in form of asset purchases, see J. Tirole, “Overcoming Adverse Selection: How Public Intervention Can Restore Market Functioning,” American Economic Review, 2012; and T. Philippon and V. Skreta, “Efficient Interventions in Markets with Adverse Selection,” American Economic Review, 2012. 8  See D. Diamond and P. Dybvig, “Bank Runs, Deposit Insurance, and Liquidity”, Journal of Political Economy, 1983.