The Connexity of Prices
Mises talked about the connexity of prices, meaning that most or all markets in the world influence each other.
Of course, that is "more or less influence each other." The corn market in the United States influences the pork market quite a bit, but the market for Tibetan religious ornaments much less so.
But forces can act to increase the connexity of markets that were hitherto more loosely joined. For instance, the risk of mortgage-backed securities was seen as low, since they pooled mortgages from all over the country, and there had almost never been a nation-wide downturn in real estate prices: different area's real estate markets were only loosely connected. But, in the very act of pooling these mortgages, bankers were coupling these markets more tightly. So by dismissing the possibility of a nation-wide collapse in housing prices, the securitizers created conditions conducive to a nation-wide collapse in housing prices.
Of course, that is "more or less influence each other." The corn market in the United States influences the pork market quite a bit, but the market for Tibetan religious ornaments much less so.
But forces can act to increase the connexity of markets that were hitherto more loosely joined. For instance, the risk of mortgage-backed securities was seen as low, since they pooled mortgages from all over the country, and there had almost never been a nation-wide downturn in real estate prices: different area's real estate markets were only loosely connected. But, in the very act of pooling these mortgages, bankers were coupling these markets more tightly. So by dismissing the possibility of a nation-wide collapse in housing prices, the securitizers created conditions conducive to a nation-wide collapse in housing prices.
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