Simon Johnson: uncertainty

Transcript context

…Given what a comeback housing prices have made in many countries around the world, should we not think that 2006–2007 wasn’t really much of a housing bubble? Prices were a little bit ahead of their time, but the actual crash was a kind of negative bubble in the shadow banking market,, and home prices then were close to rational — right or wrong? I think there’s a lot of validity to that. It was obviously also a derivative — I don’t know if bubble is quite the right word — but there was a view — and I was at the IMF, as you know, Tyler, in 2007 — and we had a view that was completely wrong, that derivatives had spread the risk around the world. In fact, they concentrated the risk, and it was that concentration of risk in these very large financial institutions in the US and in Europe that caused a lot of the panic, a lot of the problems, and that generated downward pressure on house prices, the negative to which you’re referring. Certainly, in some markets, maybe many markets, house prices did bounce back, but unfortunately, not before millions of people lost their homes. That was a really tragic set of events that we need to try to avoid in the future. Speaking of the IMF, today, how would you reform the IMF?…

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