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The Financial Crisis in Perspective (Collection) by Mark Zandi, Satyajit Das, John Authers

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Chapter 17. Ending the Great Moderation

“Stability—even of an expansion—is destabilizing in that more adventuresome financing of investment pays off to the leaders and others follow. Thus an expansion will, at an accelerating rate, feed into the boom.”

Hyman P. Minsky, writing in 1975

Bubbles require low volatility and low interest rates, which make financial engineering possible. When volatility rose with the February 2007 “Shanghai Surprise,” followed by a rise in long-term interest rates, the super-bubble was ready to burst.

February 27, 2007 dawned, like all other days, in the East. It was a slow news day in Asia, but for some reason Shanghai traders started selling. Even after the mandatory midday break in trading, they kept selling. By ...

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