Timothy Taylor points to a report by a new bureaucracy, the Office of Financial Research. Taylor writes,
The report emphasizes three main risks facing the US economy: 1) credit risks for US nonfinancial businesses and emerging markets; 2) the behaviors encouraged by the ongoing environment of low interest rates; and 3) situations in which financial markets are not resilient, as manifested in shortages of liquidity, run and fire-sale risks, and other areas.
There is a difference between actionable intelligence and bureaucratic CYA. If somebody says, “we are seeing a lot of chatter laately among these four terror cells. We had better watch these individuals closely,” that is actionable. If somebody says, “there is a risk that in the current climate terrorists will attempt a major attack,” that is not actionable, it is just CYA.
Reading Taylor’s post, I doubt that there is anything actionable in the OFR report. If the OFR had existed in 2006, we would have been told that the high level of house prices posed a potential risk. Which everyone already knew. They just did not have actionable intelligence about the state of the portfolios of key players, like Merrill Lynch, Citigroup, and Freddie and Fannie.
If we are lucky they might fund some helpful research like that recent credit conditions paper.
Dr Michael Burry had enough info to create, and profit well from … the Big Short anticipating a huge house price finance meltdown, based on actually reading the contracts.
There were 2 years after the start of house prices collapsing end of 2005, early 2006, with 2006-2007 both having economic growth despite house construction contracting. Growth after house price pop means the lags from real over-construction misallocation and the losses in the financial system create confusion about causes and effects of the financial problems and the link to the real economy.