The Real Estate sector was the real culprit that perpetrated the global financial crisis, which continues to grip many economies around the world, an international expert has said.
Wharton University of Pennsylvania Professor of Finance and Economics Franklin Allen said that financial crisis is often the result of the bubble bursting in the real estate market.
“Real estate markets are very different to stock markets. Stock markets are efficient and the prices adjust quickly. That is not true of real estate markets,” he said, delivering the keynote address at the Financial Management Association Asian Conference held in Queenstown on April 7.
An international expert in global financial crises, Professor Allen said lowering interest rates at a time when property prices were rising could lead to a bubble.
He said governments and central banks rightly attributed the problem to “those greedy people” on Wall Street.
“My own view is that much of the blame lies in the public sector ignoring property bubbles,” he said.
He advised governments to develop policies that prevented bubbles in housing markets.
Professor Allen doubted if saving institutions through bailouts was the right course of action in times of crises.
“It is a misconception that to stop a contagion you have to save the institution. Too big to fail is not too big to liquidate,” he said, adding that the best course of action was bankruptcy and liquidation, done over time, not during a crisis.
More than 120 finance specialists attended the Conference organised by the Massey University College of Business.
They included experts from 17 countries in Europe, Asia and Australasia.
The Conference, second in an annual series, provided an opportunity for 14 finance PhD students including four from Massey to discuss their research with senior scholars at a doctoral consortium.
Members of the Asian and Australia-New Zealand shadow Financial Regulatory Committees had meetings on the sidelines of the Conference to consider the potential benefits of stock exchange consolidation in the Asia Pacific region.
The committees included Massey University College of Business Head Professor Lawrence Rose, School of Finance and Economics Head Professor Martin Young, Associate Professor Ben Marshall and Professor David Ding.
