I don't know what you're aiming at but the first thing to do I think would be to forget your assumptions and take in some context. That could tell you when whatever you're interested in started.
I'm saying this because it seems your assumptions are preventing you from seeing the market movements for what they are. It's not a local phenomenon and it's older than you think. The Economist is generally a good magazine to read (it is somewhat political and limited in perspective however so you shouldn't rely exclusively on it) and famously published a number of articles about this over the years. Here's one: http://www.economist.com/node/4079027?story_id=4079027
Thanks for pointing it out (it was helpful/informative): however, where are the actual and greatest differences from the Economist and what I said?
Economist said: "Rising property prices helped to prop up the world economy after the stockmarket bubble burst in 2000. What if the housing boom now turns to bust?...it looks like the biggest bubble in history. The global boom in house prices has been driven by two common factors: historically low interest rates have encouraged home buyers to borrow more money; and households have lost faith in equities after stockmarkets plunged, making property look attractive...".
As it's the 2005, they can write that the bubble popped dramatically in the USA and that would have affected (first, directly) the US Financial market.
On the other side I have said: "I started right after the internet/dot.com financial crisis (and consequent look for alternative investments)" including the following Fed/Greenspan affair right just below quoted: do you think there's really a dramatic difference (apart the different english proficiency)?
Up to 2010 the worldwide financial crisis started with the US subprime mortgage crisis, which in turn had its roots in the stock bubble (driven by the dot.com/internet bubble) and in the subsequent Fed decision to lower the discount rate down to 0,75% (now there's also the sovereign-debt affair to complicate the matter, so I would want to set this thing apart). Is this extremely summarized recollection wrong? Are they facts or mine interpretations?
If they were slightly more similar to facts than to interpretations, your objections would sound not easily inteligible by me.
As I said, the matter of who leads and who follows is not a basic fact. I think there is room for disagreement there even if some analyses are demonstrably wrong.
I haven't read Krugman these last few years. Can you provide a specific reference? I'm not sure what you're talking about.
It's an interview at NY Times of 14th july 2008, but I have just read excerpts as here
(as it's a subscriber-only matter to read those issues right now). Krugman has gone further from that arguments in another 2010 NY Times issue
where the GSEs are not taken into account looking for the main causes for the financial crisis.
The other reference is the "Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States
" (see from page xxvi).
In general I would say that Krugman is worth reading (he's obviously knowledgable and perspective) but that it would be perilous to rely only on him and people who agree. His newspaper articles tend to make arguments which are often politically-motivated and not to give the full picture.
Maybe: as already said, perhaps I have no cultural "tool" to discuss his sounding phrases (or similar ones).
If the private sector feels that the government is going to protect them against the systemic risk (for example through the GSEs), it will behave differently. It's similar to the classic insurance paradox where an insurance which would make individuals safer leads everyone to behave in a risky way (because they think they are protected) and invite disaster, especially if the (re)insurer can't handle the systemic risk. Flood insurance is often used to illustrate the point.
It's already so, without taking into account GSEs: now the biggest banks know that worldwide governments will protect from bankrupcy.
I'm more concerned about this "moral hazard" (irresponsible behaviours) than the ones actually coming from GSEs.
when real estate market value decreased from 13 to 8 trillion, furtherly speeding up those rates.
Your figures are way off. It's not clear what you're talking about but real estate is worth a lot more and didn't fall so much (the Fed's Z.1 which is only a partial figure says 34 to 26 trillions). Maybe you're talking about the aggregate debt for a type of mortgage?
No, I think that they come from Z1 but I have made a bad translation of the "total home equity" expression (which can be even an indicative number, but it isn't at all the figure I pretended to be).
This is how usually MBA and other association give those data to the public, and this is why I wrote "default/foreclosure"
That's not true. You keep bringing up erroneous details so I wonder what's going on. Are you relying on a distorting Italian-language source?
Just the last example: "...The combined percentage of loans at least one payment past due or in foreclosure was 12.63 percent on a non-seasonally adjusted basis, a nine basis point increase from last quarter, but was 115 basis points lower than a year ago..."
Forget the MBA. If you want US real-estate data, try this: http://www.standardandpoors.com/indices ... y=Economic
Since this seems to me similar to what I think I have said, I must conclude that it in fact I do not understand your point: could you repeat/explain me with other words?
In a nutshell, no one needs to do anything irresponsible or wrong for crises to happen. You keep looking for superfluous scapegoats.
Or we just have different ethics and crises happen out of the blue.
I don't understand exactly what you're trying to say but I don't see anything wrong with that. In principle you can do all that without issues. If you're talking about misrepresenting what one is selling then OK
Then we're OK.
but it looks like you're saying intermediation or markets as such is dangerous.
It may look like but in case you've just misunderstood.
Just for example, you can intermediate on a FOREX market and you are perfectly legitimate to do so, even IMO.
But if you intentionally misrepresent what FOREX actually is (in order to intermediate more, so to make more money), it's a dangerous and not legitimate action, while if you do it not intentionally, it's even worse (because a stupid subject - like me in some circumstances right now - is worse than an evil one, in this case).
The bit about "playing with other people's money" looks like populist rhetoric. Or is your problem banking as such? It's what all banks do!
Another misunderstanding: with "playing with other people's money" I am referring to investors (I mean who's bought MBS and similar securities) capital.
You know better than me what "Tier-N capital ratios" mean: the holding capital of a financial firm have to safeguard against unexpected losses, and it was usually a small fraction of total equity (is the term right?), at least for the banks.
So, add your systemic risk to small actual capitals and those inherently high risks securities (for an higher yeld, of course), shake together, put it at the foam of a bubble, and you'll go very close to something nearby the almost perfect disaster.
The average guy on the street is equipped to judge the morality of the punishments (or rewards) bankers get for spectacular failures but not to meddle in technical details which may or may not have anything to do with said failures.
Probably that boogey man cannot say them what they had to do, but he more easily can recognize something they shouldn't had done.
Perhaps you are underestimating groundlessly several people: several people know that if you systematically underestimate the safety distances sooner or later you crash into something hard, whether we are talking about traffic and financial markets.
TANSTAAFL is always true.
In my opinion History, so from a later perspective, apparently says they didn't.
History doesn't say any such thing. It's your interpretation and you need specific knowledge to come up with a valid interpretation.
Such your judgement looks like useless (not to mention that you give just below your interpretation about what Fed should had done).
The negative interest rates such the ones set by Fed discount rate in late 2002 fast paced the housing bubble: why is this a mere, wrong, not authorized my interpretation?
Can you say they did their best?
No. But if I wanted to, I'd start by reading the minutes of the meetings. Have you?
I don't know not even where to pick up them, and once in my hand they still would be written in a language which already creates me problems with expressions like "total home equity".
Rather than blaming wartime rates which don't seem to have affected prices and are going to be influenced by considerations unrelated to our topic anyway, my guess is that their worst misstep was to raise rates in 2006 and to wait so long to lower aggressively them as real estate was crashing. Their general bias for more than 30 years has been to set the rate too high considering their mandate and their tough attitude late in the game made the crisis more brutal than it needed to be.
Ok, it sounds enough acceptable: more probably that not your chronological choice (for the discount rate) is better (worse) than mine.
Check out the minutes and see if they weren't uncomfortable about their image post-Greenspan and if they didn't freak out about stuff they couldn't control like commodity prices...
I don't know not even to pick up them, bla bla bla... ok point me out the repository, I'll give them a skimming check.