There is a double whammy, however, because at the same time, the opportunity cost to acquire high quality liquid assets will imply that there will be a decline in the supply of loanable funds.
I trust such an episode would not induce us to lose sight of the very important contributions hedge funds and new financial products have made to financial stability by increasing market liquidity and spreading financial risk, and thereby enhancing economic flexibility and resilience. *** The economic and financial world is changing in ways that we still do not fully comprehend.