From Vanity Fair:
Henry Paulson, secretary of the Treasury: I easily could imagine and expected there to be financial turmoil. But the extent of it, O.K., I was naïve in terms of—I knew a lot about regulation but not nearly as much as I needed to know, and I knew very little about regulatory powers and authorities. I just had not gone into it in that kind of detail. This’ll be the longest we’ve gone in recent history without there being turmoil, and given all the innovation in the private pools of capital and the over-the-counter derivatives and the excesses around the world, we figured that when there was turmoil, and these things were tested for the first time by stress, it would be more significant than anything else.
I said at the time, I have a concern that every rally we’re going to have in the financial markets will be a false rally until we break the back of the price correction in real estate. And these things are never over until you have a couple of institutions go that surprise everyone. Bear Stearns can hardly be a shock.
But having said that, it’s one thing to see it intellectually and it’s another to see where we are.
I said at the time, I have a concern that every rally we’re going to have in the financial markets will be a false rally until we break the back of the price correction in real estate. And these things are never over until you have a couple of institutions go that surprise everyone. Bear Stearns can hardly be a shock.
But having said that, it’s one thing to see it intellectually and it’s another to see where we are.
I gotta wonder, what exactly does Paulson mean by "breaking the back" of the price correction in real estate.
I know! I was just wondering that myself. I think it has to do with pushing it to the limits of "correction" - that is, to the point where the market totally tanks. It doesn't bode well.
Posted by: teahouseblossom | April 14, 2009 at 10:06 PM