WAS LAST WEEK’S STOCK CRASH A BANK RUN?

WAS LAST WEEK’S STOCK CRASH A BANK RUN? Many people think of stocks (equities) as liquid assets, which can be sold quickly in an emergency to raise cash. Last week’s crash in the stock market can be thought of in part as like a run on bank. A run on a bank occurs when a lot of depositors try to withdraw their cash at the same time. When a lot of people want to get cash out of the stock market at the same time, it looks like a bank run. This article in today’s Wall Street Journal reports on some major margin calls last week that forced big investors to sell to raise cash. (A margin call has the effect of requiring the immediate repayment of a loan). As one example, the chief executive of Chesapeake Energy Corp. had to sell 94% of his holdings in the company last week to raise cash to repay a loan. The shares were sold for less than 25% of what they were worth on July 2. They were worth $2.2 billion on July 2 and sold for $569 million last week.