1 indicates, it was shall we say an interesting time for researchers from japan to ask such a question. however, when i inquired about the rapid increase in real estate prices in their country, i always received the same answer – japan is an island nation and had limited buildable lots, and that prevented real estate prices from declining. this view was very widely held. however, as you can see in figure 2, that widely held financial myth was soon shattered. unfortunately, the result of this belief was eventually the crippling of some of the world ’ s largest financial institutions, a long period of subpar economic growth in japan, and eventually a problematic deflation that japan struggles with to this day. a second example is provided by the growth of the internet, and in particular the growth in “ dot - com ” stock valuations, in the late 1990s. as figure 3 shows, there was a substantial run - up in stock valuations during this period. at the time i had conversations with a variety of financial professionals in boston who made the argument that traditional valuation measures no longer applied. the view assumed by many was that valuation of firms should be based on clicks of a computer mouse rather than earnings, either current or expected in the future. as figure 4 shows, such enthusiasm for a new way of valuing companies was short - lived. but importantly, the substantial decline in internet - related stocks did not create a financial crisis. many of the positions were equity financed – so, while significant wealth was lost, financial institutions and financial markets did not suffer severe repercussions. that loss in wealth helped ignite the 2001 recession, but it was a much more mild downturn than the one we have experienced of late. with the financial infrastructure not significantly damaged, the impact was much less severe than if individuals and firms had taken highly leveraged positions. bis central bankers ’ speeches financial myths in the recent crisis now i ’ d like to describe, and present some charts that illustrate, four financial myths that played a role in the recent crisis. myth 1 – diversification eliminated the risk of declines in residential real estate holdings despite the experience of japan ’ s real estate in the 1990s, and substantial declines in real estate prices in many regions of the united states throughout history, many commentators argued that a significant, widespread housing - price decline in a country as large and varied as the united states had not happened historically and was very unlikely to occur. that logic was based on what you see in figure

vittorio corbo : farewell speech as governor of the central bank of chile speech by mr vittorio corbo, governor of the central bank of chile, on his departure from the central bank of chile, santiago, 6 december 2007. * * * everything comes to an end. today i complete my term as the governor of the central bank of chile, a post for which i was appointed on may 1st 2003 by the then president of the republic, mr. ricardo lagos. i want, first of all, to especially greet jose de gregorio, the new governor of the central bank of chile, who i am sure will lead this beloved institution through the roads of professionalism, independence and strength it requires for the good of the country and all chileans. this is a very propitious opportunity to wish him great success in this great task. from the board and as vice - governor, jose has been a very relevant factor in the advances and accomplishments that our institution has made in the past several years. in his new position, he will be backed by a first - class board and staff of high technical and professional level, capable of assuming with rigor and efficiency the bank ’ s mission. i also want to acknowledge my fellow board members who accompanied me during this period. being it a collegiate entity, nothing would have been achieved without their active cooperation. and i want to greet sebastian claro, the new board member of the bank, who i am sure will quickly be immersed in the spirit prevailing in this institution. i believe that everyone here today share a legitimate pride because of the place this bank has achieved both in the chilean society and at the world level. let me tell you what happened to me four years and seven months ago, when president lagos asked me if it would be a problem to me to be appointed board member and governor of the central bank for such limited period, which was the remaining of the term of my predecessor, mr. carlos massad. i replied that it was not a problem, because it gave me time enough to propose and develop an agenda. it is no secret that i came to an institution that was living a crisis. my predecessor, in an act of great integrity, had chosen to resign in order to avoid the criticism that was building up against the bank from affecting its institutional capital irreparably. i was aware then that, by accepting the post, i was assuming an enormous responsibility, which consisted essentially in protecting and strengthening its institutional capital. it