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BEFORE OUR VERY EYES 

that financial intermediation would be impaired than was the case in
prior episodes of regional house price corrections. 

Indeed, Greenspan would not be the only one confident that a housing downturn
would leave the broader financial system largely unscathed. As late as March ,
after housing prices had been declining for a year, Bernanke testified to Congress that
“the problems in the subprime market were likely to be contained”—that is, he ex-
pected little spillover to the broader economy. 
Some were less sanguine. For example, the consumer lawyer Sheila Canavan, of
Moab, Utah, informed the Fed’s Consumer Advisory Council in October  that
 of recently originated loans in California were interest-only, a proportion that
was more than twice the national average. “That’s insanity,” she told the Fed gover-
nors. “That means we’re facing something down the road that we haven’t faced before
and we are going to be looking at a safety and soundness crisis.” 
On another front, some academics offered pointed analyses as they raised alarms.
For example, in August , the Yale professor Robert Shiller, who along with Karl
Case developed the Case-Shiller Index, charted home prices to illustrate how precip-
itously they had climbed and how distorted the market appeared in historical terms.
Shiller warned that the housing bubble would likely burst. 
In that same month, a conclave of economists gathered at Jackson Lake Lodge in
Wyoming, in a conference center nestled in Grand Teton National Park. It was a
“who’s who of central bankers,” recalled Raghuram Rajan, who was then on leave
from the University of Chicago’s business school while serving as the chief economist
of the International Monetary Fund. Greenspan was there, and so was Bernanke.
Jean-Claude Trichet, the president of the European Central Bank, and Mervyn King,
the governor of the Bank of England, were among the other dignitaries. 
Rajan presented a paper with a provocative title: “Has Financial Development
Made the World Riskier?” He posited that executives were being overcompensated
for short-term gains but let off the hook for any eventual losses—the IBGYBG syn-
drome. Rajan added that investment strategies such as credit default swaps could
have disastrous consequences if the system became unstable, and that regulatory in-
stitutions might be unable to deal with the fallout. 
He recalled to the FCIC that he was treated with scorn. Lawrence Summers, a for-
mer U.S. treasury secretary who was then president of Harvard University, called Ra-

jan a “Luddite,” implying that he was simply opposed to technological change. “I felt
like an early Christian who had wandered into a convention of half-starved lions,”
Rajan wrote later. 
Susan M. Wachter, a professor of real estate and finance at the University of Penn-
sylvania’s Wharton School, prepared a research paper in  suggesting that the
United States could have a real estate crisis similar to that suffered in Asia in the
s. When she discussed her work at another Jackson Hole gathering two years
later, it received a chilly reception, she told the Commission. “It was universally
panned,” she said, and an economist from the Mortgage Bankers Association called it
“absurd.” 