Among these were the long period of global macroeconomic stability and low inflation that was expected to continue and that low yields were a natural consequence of the flow of savings from Asian economies. There were alternative, more pessimistic views centred around the view that investors were seriously underestimating risk and taking on too much leverage.
But the more prevalent view seemed to be that the diversification of risk made possible by financial innovation, and the relative strength of capital and liquidity levels, would stand the system in good stead. You could say it had a ‘this time is different’ flavour. While recognising these arguments, policymakers in Australia never entirely bought into this.