Ah yes, because 2008 was caused by the fed and the fed only. What had nothing to do with it was the complete ignorance of systemic risks related to pulverizing risk, to the CDS/CDO markets, the similar mathematical models accross banks and their systemic risks, dynamic hedging and so on. The use of LVAR models, normal distribution, the copula, the lack of models to price assets in illiquid falling markets, the misuse of mathematical models by management, if they didn't like the risk the model produced they'd tell the quant to "change it around", the lack of even even the most basic math skills like correlating mean wages and housing prices. The massive predatory trading against failing firms. The use of "expected value" models (lol). Using 10-day VAR based on data from the 90s to price 2007 housing. The blind belief in rational and efficient markets from both market participants and regulators, remember Alan Greenspan believed in that stuff and so does Bernanke. The credit risk exposures from SPVs and CDS markets. The dominance of a few monopolies in the chains of insurance and reinsurance for CDS credit risk mitigation for banks' assets, the fact that the top 5 US banks account for 92% of US bank activity in the $34tn global gross notional value of CDS for Q4 2008. The perverted incentive that "Too Interconnected to Fail" presents, in that you have to give the illusion of non-failure in order to avert a credit event that can bring the entire CDS pyramid down. The large negative externalities that arise from the lack of robustness of the CDS financial network from the demise of a big CDS seller, actually undermines the justification in Basel II that banks be permitted to reduce capital on assets that have CDS guarantees. Somehow these are all tangent details.
There is a limit to economic integration in the absence of fiscal integration. The Euro experiment is a case in point. The economic integration between the US and China is approaching practical limits in the absence of fiscal integration. This economic integration and the consequent real deflationary influence is a luxury for the Fed that is fading away.
A market theory backed by technical analysis is fine, market theory without price in agreement has a higher probability of being suicidal.
It all comes back to securitization of the MBS market (the fire) and the Greenspan and Bernanke 0-rate policy (the gasoline). Do you think that AIG was using the copula when they went one-way with every CDS transaction? There was no netting problem as AIG never bought a CDS. My Buffett comment was to show that we've learned nothing in five years and the cycle must repeat. Who cares what caused it when we're doomed to repeat it? Does the shit look brighter now? What are the notional exposures in CDS at present? Swap losses at 5% on long bonds? Caldera?
Are people really arguing that the fed is doing things right? All you need to know is that they are embarking on policies that have never worked. I'll fade them succeeding, of course timing is always relevant.