Del gurú de Calafia

No se pierdan este post de Mr. Grannis sobre la crisis financiera: OK, this is a serious crisis, and that's good.

The VIX index, the measure of Wall Street's panic, rose this morning by enough to qualify this as a very serious problem. That's of course bad, but it's a good thing because it means that a great number of people have tried very hard to avoid risk (e.g., by buying put and call options, by selling, by hoarding cash) and so now they can sit back and wait for things to settle down.

In other words, the signs of panic and desperation are abundant, and sufficient for this to be the peak of the crisis. It needn't go much further, because this crisis is still limited to housing and banking. The basic problem is simple: people bought a lot of housing at inflated prices with borrowed money, and it's now going bust. There's no quick and easy solution to this problem, since the Fed would have to ease so massively as to reflate everything and thus stop the decline in prices. So we are unlikely to get rid of the problem soon, no matter what the Fed does today (I would not ease if I were Bernanke). Meanwhile, the market is dealing with the consequences of the problem. Housing prices are getting marked down and the market is clearing. Surely the financial markets have priced in and digested the great majority of the real estate losses. This can't go on forever and we've probably seen the worst.