The genesis of the financial crisis

While searching for a good time line of the financial crisis the other day, this paper(.pdf) was stumbled upon containing a most interesting opening item or two:
The genesis of the ongoing financial crisis seems quite clear to some and, contrary to what you might think from the above, this is not some sort of high-level summary - it goes on for another 63 pages, describing in great detail the events of the last couple years.

Ironically (for me at least), the genesis himself - former Fed Chairman Alan Greenspan - was on This Week with George Stephanopoulos today and he had some interesting comments about the housing market and the possibility of a "second wave down" for the economy.

If you skip right to the 2:45 mark, you'll quickly realize that Stephanopoulos believed everything he read in the newspapers last week regarding home prices.

Per the transcript the former Fed chairman once again proves to be much more clear about things in retirement than he ever was at the central bank.

GREENSPAN: ... unless home prices stabilize within, say, maybe, 5 percent down from here, we're going to run into some...

STEPHANOPOULOS: Well, the Case-Shiller has shown that they probably have stabilized some.

GREENSPAN: Well, they have stabilized temporarily. And the problem with the data on home prices is they're very difficult to measure in their regional data.

It is possible. I don't think it's going to happen, but I do think it is possible that we could get a second wave down. But the important issue is, if we don't -- and I think the probability is that we won't, that we are close to stabilization.

Under those conditions, you will begin to get a very significant change in the underlying confidence in the consumer area.

STEPHANOPOULOS: And then you might see that in the consumer area; you might see that in the stock markets. So that is the -- is the trigger, possibly -- you say it's unlikely -- that that could be the trigger to a second dip?

GREENSPAN: If you get another dip and a renewed decline in prices, we're going to run into an acceleration of a number of homes that are mortgaged and are underwater; that is that the value of the properties are less than the debt.

If that happens -- and, clearly, looking at the structure of where debt and values, it would, if, for example, home prices fell by 10 percent or more, that would create a major acceleration in foreclosures. And I think it could be a factor...

Most analysts who have been more right than wrong about the housing market in recent years (and there are not too many that fit into that category) are seeing another ten percent or more drop in prices nationally.

Of course, the vast majority of those who never saw the housing bubble before its bursting turned it into an undeniable truth probably think the bottom in home prices is now in.

ooo

This week's cartoon from The Economist: