A New Policy Paradigm
- KDI series in Economic Policy and Development
Edited by Susan Wachter, Man Cho and Moon Joong Tcha
Chapter 1: The global financial crisis and housing: a new policy paradigm
It is at our peril that we ignore the role played by real estate markets in global financial stability. In the U.S., this should have been clear after such disasters as the commercial real estate crash in the late 1970s and the savings and loan crisis in the early 1990s, for with these downturns came the seizure of financial markets and the hurried response of policymakers to assuage the panic before it triggered a national meltdown. Elsewhere too, national economies were threatened with real estate booms and banking busts, including Norway, the UK, and most prominently Japan, in the early 1990s. But these abbreviated fears were quickly forgotten, exposing the Asian markets to an even more severe real estate crash in 1997. This shockwave really did go global, but only momentarily-and like the others, its passing was treated as cause for renewed faith in the system, rather than much-needed inquiry into the vulnerability that seems to continually plague the housing market. Thus did we invite rampant excess to run roughshod over this vulnerable market. Thus did the Great (global) Financial Crisis (GFC) strike exactly one decade later. This continuity is key, for it underscores an important fact: What we are dealing with here is a repeated cycle, an interdependent yet fragile link between real estate markets and the global economy.
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