That a speculative bubble in the real estate and derivatives markets can bring deposit-taking institutions to the brink of not lending to each other demonstrates conclusively that the current clearing system does not work: It cannot withstand sharp shocks without massive public subsidies.
Also, the bulk of the costs of maintaining a clearing system are independent of usage rates, so price/transaction is not a meaningful number to judge the price of a clearing system.
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
These banks are deposit-taking institutions. If they stop lending to each other, the clearing system ceases to work.
