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The Housing Bubble

Tyler Cowen debunks the “blame the CRA” theory of the economic crisis and then observes, “You can, however, cite the general obsession with extending home ownership as strong evidence that putting Democrats in charge does not suffice to solve our regulatory problems.”

This seems true enough to me, and long before I had any inkling of the magnitude of the crisis I was of the view that this was a dumb idea. But it should be said that as of when Bill Clinton left office, house prices hadn’t reached any unsustainable peaks. Since the nature of the crisis is, in many ways, very complicated it seems natural to think that the right regulatory fix would necessarily have been a complicated one as well. But I wonder how much of the current problems could have been avoided if, back in February of 2004, instead of touting the alleged wonders of ARMs Alan Greenspan had said something like “many people seem to be taking out mortgages based on the assumption that house prices will continue to appreciate indefinitely, but that’s a bad idea as is making loans that are based on that premise, as is buying securities backed by mortgages that were undertaken based on that premise. Everyone should be more careful.”

Maybe everyone would have ignored him, but he had something like God-like status in the press at the time.

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