As the recent financial boom continued, many policymakers did indeed worry about the overpricing of houses and the underpricing of risk, but we were only partly successful in identifying the circumstances and channels that have seemed to trigger the most distress. Almost by definition, it is the unanticipated event that causes the most problems.
And the way financial turmoil resonated through the global financial system indicates that the linkages among lenders and borrowers through leverage, complex interdependent counterparty relationships, and backup liquidity agreements propagated and intensified financial distress in ways neither the private nor the public sector understood very well.