A mirage, not a miracle?

The Buttonwood Op-Ed in the Jul 15th 2010 issue of The Economist (A Mirage, Not a Miracle) is very interesting because it summarizes 3 conclusions from the recent financial meltdown and subsequent economic crisis, that should, but unfortunately might not, prove useful to governments, financial institutions, and the public at large:

1 - it explains how banks and financial institutions cheated the established system and took on activities without bearing the risks themselves, thus creating systemic risks. In effect, the huge development of the financial sector was a fake, and a fluke. However, governments still fail to grasp this, despite having committed huge sums in saving banks and supporting consumption to limit te effects of the economic contraction

2 - this was possible only because almost everybody failed to realize that property prices couldn't grow faster than the larger economy. Well, people in France still fail to graps that, and real-estate prices are overdue for a severe correction. They currently stand at 39.1% above their historical purchase price-to-rent ratios. It will probably be less of an issue than in the United States and Great-Britain, since far fewer real-estate owners have used their proprties to refinance loans, due to stricter lending standards. What that means is that a correction is less likely to lead to reduced consumption. However, a large number of "freak-outs" is likely to occur and disrupt the european economy further. Fortunately, german property prices have never increased much above historic levels, and spanish and british prices have already crashed; which shuld limit the wider effect of a fall of french real-estate prices.

3 - the governments are far more efficient when they regulate in order to limit systemic risks and bubbles, rather than intervene in the economy, with a tendency to increase those risks, as the subsidies to real-estate purchases have proven.