Stossel's special tonight goes a step beyond many reports I've seen, and for that he should get credit for being persistent.
It was the low interest rates that spurred lenders to loan, even to non-worthy borrowers, which created the bubble ultimately burst.
And I believe you can guess what mechanism created those unrealistically low interest rates . . .
Flying fickle fingers.
it was the mandates by congress!!
No one should be allowed to buy a home with less than 20% down!
Yeah..but weren't those non-worthy buyers loans being backed by Fannie Mae/Gov't? I can't see someone lending just because the rates were low--they had to have an out, a way to relived themselves of the toxic loan.
I agree though, cheap money will always create a credit bubble. The Fed is the first one to blame, then all these stupid Lefty laws, then all the stupid RINOS that won't do anything to repeal RAT legislation, regulation.
It doesn't help either when banks have to compete with something like FHA, when they used to require 20% down. Who would want 20% down when you can get an FHA loan?
Low interest rates spurred borrowers to borrow. If anything, it would have been a disincentive to lenders, had lenders actually been all that concerned about holding the notes to maturity. They weren't. They were being sold, divided into tranches and sold again. The lenders were profiting from fees and commissions for handling the transaction, not from the paper itself, which barely touched their hot little hands.
Poor credit risks were accepted and financed as a result of government pressure. The risk was not borne by the lenders so heck they didn't give a hoot, recall that they were profiting from fees and commissions, not from the note, which was promptly sold, right along with the risk.
The low interest rates were the result of high demand for treasuries from foreign nations, China for the most part, sending all their dollars back home to roost in treasuries, thereby driving down the yield of the ten year, to which mortgage rates are tied.