Belief, lubricant of capitalism

"Liquidity" is a figure of speech, describing the following situation:

• A is ready and able to buy an asset from B on short notice
• At a price B considers reasonable
• Which usually means C has to be willing to lend money to A
• Which means C believes A is solvent and the asset is good collateral
• And if A is a dealer, A and C both have to believe that the asset could be readily sold to D
• Which means they both have to believe that there is an E willing to lend money to D.

In short, liquidity is about group belief in the solvency of counterparties and the reliability of prices, reminding us that "credit" and "credo" have the same root. When no one is sure who is broke, and there is high uncertainty about prices, we will discover that liquidity has vanished, however plentiful it may recently have seemed.

To alter Shakespeare a bit: "Tell me where's Liquidity bred, In the heart or in the head?"

At the end of the boom, in the heart, not the head, unfortunately.

(From a Letter to the FT Editor by Alex J. Pollock, Resident Fellow, American Enterprise Institute)

Enabling group creativity

Creativity, through group interaction, can be achieved when several of the following conditions are met:

1. Clear goals (expectations and rules are discernible and goals are attainable and align appropriately with one's skill set and abilities).Concentrating and focusing, a high degree of concentration on a limited field of attention (a person engaged in the activity will have the opportunity to focus and to delve deeply into it).
2. A loss of the feeling of self-consciousness, the merging of action and awareness.
3. Distorted sense of time - one's subjective experience of time is altered.
4. Direct and immediate feedback (successes and failures in the course of the activity are apparent, so that behavior can be adjusted as needed).
5. Balance between ability level and challenge (the activity is neither too easy nor too difficult).
6. A sense of personal control over the situation or activity.
7. The activity is intrinsically rewarding, so there is an effortlessness of action.

In fact, the above points describe the conditions for flow, as defined by Csikszentmihalyi. He goes on to say:

When in the flow state, people become absorbed in their activity, and focus of awareness is narrowed down to the activity itself, action awareness merging.

Source: "Beyond Boredom and Anxiety," Csikszentmihalyi