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The Fed quickly understood that a measure of moral suasion was needed to solve what was in essence a coordination problem. If all banks used the discount window, no bank would be targeted as weak and all would be better off, whereas if only one bank took the initiative it would have risked a panic run on its deposits. In a show of goodwill, and probably gently prodded by the Fed itself, Citigroup, Bank of America, Deutsche Bank, JP Morgan Chase, and Wachowia simultaneously tapped the discount window on August 22, 2007, for a total of $2 billion.

21 true: the driving force behind the crisis was the widespread conviction that systematic profit opportunities were available on a sustainable basis. The EMH has also been blamed for spawning the capital asset pricing model (CAPM), which frames investment based on a trade-off between risk and return. Like most economic models, the CAPM has its flaws, but its underlying principle does not seem so pernicious, especially compared to the soothing belief that high return could be obtained at zero extra risk, which led to unreasonably compressed spreads on risky assets on a global scale.

The EMH has also been blamed for spawning the capital asset pricing model (CAPM), which frames investment based on a trade-off between risk and return. Like most economic models, the CAPM has its flaws, but its underlying principle does not seem so pernicious, especially compared to the soothing belief that high return could be obtained at zero extra risk, which led to unreasonably compressed spreads on risky assets on a global scale. These criticisms set up the EMH as a straw man by outlining its most extreme version, and then arguing that (a) it has been universally and uncritically accepted until now, and (b) the recent crisis has finally exposed it as a glaring fraud.