Liquidity and Fraud in the Financial System

This chapter examines the critical role of liquidity in the financial ecosystem and its potential to obscure fraudulent activities, citing the bankruptcy of a Texas subprime auto lender. The discussion contrasts bad lending practices with outright fraud while exploring the risks posed by prevalent loan refinancing in an accommodating financial environment. Furthermore, it highlights the need for accountability in lending and the importance of disciplined portfolio management amidst unpredictable market conditions.