The idea of a “Lender of Last Resort” (LOLR) brings harsh focus to the importance of liquidity. Price isn’t value. If you have stuff no one wants, the price is zero. It doesn’t matter what it is. It doesn’t matter how much you think it is worth in normal times. If you don’t have the capacity to reach normal times. The price may even be negative. You may have to pay someone to take something with long term value from you, because you simply have no option. There is nothing as dangerous as having no options. The role of LOLR is played by Governments or Central Banks. Selectively and inconsistently. Lending to institutions they don’t want to fail when no one else will. The Bank of Mom and Dad plays this role for many surface level risk takers. For the majority of people, there is no last resort. There is no one to step in. They are their own last line of defence. Risk is deeply personal.
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