The situation was saved, as I have said, as far as the liquidity problems
went, at least temporarily, by massive injections of liquidity but not without
solvency problems having led to the effective failure of some banks,
and certainly not without with major consequences for the real economy.
But, what is important is that the measures taken were purely pragmatic,
and often orthogonal to both what models would have suggested and
to ideological convictions. The only explanation given by those taking
the decisions was that ‘in exceptional times we need exceptional measures’.
But it is difficult to put much confidence in measures which are taken
neither on theoretical grounds nor on any well-defined policy view What it seems to suggest is that those taking the decisions have little
understanding of how the system really functions and evolves and that
the models which they or those who advise them use, are simply too
detached from reality. Thus, in difficult times, theory is put to one side
and it is replaced by pragmatic judgement