“Liquidity has been difficult,” says a trader, but it’s not a “systemic financial system issue.” Yet.
In the past two weeks, the stock markets have fallen further and faster than any time in a century, aside from the granddaddy of all plummets—the 22.6% one-day decline in the Dow Jones Industrial Average on October 19, 1987. And indeed, for the traders on the fourth floor of Goldman Sachs, in Lower Manhattan, Monday’s 2,000-point rout in Dow had “a feel of history” saysGoldman’s global head of hedge fund coverage.
Pasquariello says that one of the big differences between the Panic of 2020 and the GFC, aka the Global Financial Crisis of 2008, is that this correction, so far, has been caused by an exogenous event—the spreading of the coronavirus and its potential for debilitating consequences in economic growth—rather than by a widespread systemic breakdown in the plumbing of the financial markets.
Pasquariello says the firm’s clients are asking Goldman to provide liquidity—the ability to buy and sell—across a variety of different asset classes and for “risk transfer,” where “they need to move a piece of risk to insure against an outcome.” He says on days, like Monday, with extreme movements in the markets, calls “come from all corners of your franchise.” He, too, is finding the “tone” of the conversations to be “pretty balanced” and not “overly dramatic.
Not all market participants are as calm as the Goldman crew. One hedge fund manager won’t visit with me in person because he’s very worried about the coronavirus, even though he’s young and healthy. “Here’s the reason we’re all going to experience it unfortunately,” he says by telephone. “It’s because all of us have parents and friends and we have people who are not young or not healthy or cancer survivors.
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