So to give my dear followers some bones to chew on today, I'll just copy a quote from The Big Short, Michael Lewis book about the CDS and CDO collapse — which is definitely a good read. It's from the chapter titled The Long Quiet, which is the period during which the real estate market was collapsing, but the markets, and more specially, the mortgage backed securities, kept on climbing as if nothing had happened:
To Steve Eisman at FrontPoint Partners [one of the managers massively short the subprime CDOs] the market seemed mainly stupid or delusional: a financial culture that had experienced so many tiny panics followed by robust booms saw any sell-off as merely another buying opportunity. [...]And we're back to 2007. It is still surprising me that markets are so stupid and its participants memory as effective as a goldfish's, but I'm guessing I am the one who's a bit stupid to think that markets would react another way anyway.