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This forced financial firms to increase collateral for credit default swaps which meant more calls for new capital.
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Therefore, the main benefit of rising house prices for a homeowner lies in providing increased collateral for extended borrowing, usually to cover consumption expenditure.
Without one, they argue, increased collateral requirements for cleared trades would make hedging their everyday risks much more expensive.
Mr Greenspan reckons the best remedy is to improve the system's capacity to absorb losses by raising banks' capital and liquidity ratios and increasing collateral requirements for traded financial products.So far, so uncontroversial.
They used this increased collateral to obtain massive loans for more land and machinery from equally sanguine and eager lenders.
The financial margin is another type of special entity, assuring a level of security for the lender through increased collateral.
A particular case that Doyle and other economists have been critical of was the ECB's February decision to end a waiver allowing a Greece to use its junk-rated sovereign debt as collateral for loans, thereby increasing its borrowing costs.
At the same time the European Central Bank took steps to increase the assets it would take as collateral for loans.
But euro zone central bank sources say hardliners led by Germany's Bundesbank want the "haircut" on Greek securities offered as collateral for the funding to be increased following recent credit rating downgrades of Greece and its banks.
At the least, he said, borrowers would have to increase the amount of Treasury securities they offered as margin, or collateral for loans.
But even if that is correct, house-price increases may still have an impact as they create housing collateral for consumers who could not otherwise borrow.
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