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The Upside of Falling Bank Stocks

Posted on July 15, 2008

Financial stocks are plunging right now: If Fannie (FNM) and Freddie (FRE) can be brought to their knees, then no bank is safe. And falling bank stocks are systemically very worrying: The equity cushion is an important part of the way in which banks protect themselves from runs and ruin, which means that a falling share price can become self-fulfilling. But I'm more sanguine about all this chaos. Indeed, it's entirely possible that the volatility we're seeing on the stock market right now is actually a good thing, systemically speaking....

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