A popular thought is that as the markets become more fluid, globalized, and interconnected, we have tamed market volatility.
For a while that seemed to be true. See chart below that shows CBOE's VIX (an index to measure volatility, developed by Prof Whaley at Duke). http://finance.yahoo.com/charts#chart5:symbol=^vix;range=20010102,20080405;indicator=volume;charttype=line;crosshair=on;logscale=off;source=undefined
Fed rates were at low, inflation had been stable and low for several years, and we seemed to have weathered recessions much better than what we had been able to in decades before. Low rates and plenty of credit had made people believe that credit was going to always be available. However as the chart shows, volatility has sprung up very rapidly in recent months.
It may indeed be the collective thinking that volatility has been tamed that may have led to the increase in volatility. As the gov't, policy makers, investors and consumers get increasingly comfortable that asset prices would keep increasing, and credit supply would be continually available at its attractive rates, they were prone to make irrational bets.
