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1l.cRate-race:Saverrs’iplreferlshort-term

Assets

Liabilities

Long-term assets

  • -

    mortgages

  • -

    firm loans

-

10 years

Equity

Long-term funding

expensive

Short-term funding

- CP

3 months

- Repo

1 day

cheap

Money Market Funds

$ 3 trillion Firms savings

$ 1 trillion

  • Consequence: short-term financing and rolling over of debt by

    • banks

    • SIVs (off-balance sheets) …

  • is much cheaper than equity financing (equity financing has stigma)

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