"A banking panic means that the banking system is insolvent. The banking system cannot honor contractual demands; there are no private agents who can buy the amount of assets necessary to recapitalize the banking system, even if they knew the value of the assets, because of the sheer size of the banking system. When the banking system is insolvent, many markets stop functioning, and this leads to very significant effects on the real economy. This paper makes the case that the ongoing “credit crisis” is actually a [shadow] banking panic."
--Gary Gorton, Slapped by the Invisible Hand
