Is the housing market prepared for the next crisis?

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How much has the market learned from the financial crisis a decade back? And are we prepared for the next crisis? Darrell Duffie and Amit Seru, both professors with Stanford’s Graduate School of Business spoke recently to Edmund L. Andrews for the institute’s Insights blog about their concerns with the current U.S. housing market.

Both the professors of finance have spent considerable time studying the underlying causes of the Great Recession and believe the conditions that led to the last crisis could still very well be lurking in the market.

Seru, whose chief focus has been assessing responsibility for the subprime mortgage crisis among banks and regulators, stressed that the causes of the next financial meltdown remained unpredictable. According to him, the large number of market variables made it difficult for anyone to be able to forecast clearly. He contended that the best method for preventing future shocks to the financial system would be by passing legislation that requires banks to keep bigger “equity capital buffers” to withstand unanticipated market turbulence.

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