“All these economists seem blissfully unaware of what was feeding the housing bubble - subprime loans mandated from executive branch initiatives that started under Clinton and Cuomo.”
That’s the meme around here. Unfortunately for that theory the huge participation of Wall Street investment banks and pure mortgage lenders was done entirely without government pressure.
The initiatives such as the CRA applied to deposit-takers like your local bank. Wall Street gets its capital from investors, not depositors, and was not mandated to do anything.
The world of subprime lending was consciously targeted for development by Wall Street because it offered high yielding paper, and no one had mined that market prior to 2000. The fact that developing the subprime market paralleled the mandates to depository institutions is an interesting historical irony but that’s all that it is.
I'm sure you would have an interesting discussion with Peter Wallison. Weren't JPMorgan Chase, Citibank and Bank of America depository institutions?
Now I wouldn't say Fannie & Freddie did it all by themselves, but they led the way with subprimes, and the Fed couldn't appreciate that buy keeping interest rates so low that they were also fueling a huge real estate bubble in housing and commercial real estate. The real estate and construction industries have yet to recover, and everybody who supported or supplied them are barely surviving, if that much.
Agree, agree!!
The big investment banks were up to their eyes in coming up with new ways to pedal paper securities to anyone and everyone they could and be damned of the risks or fall out if things didn’t pan out.
They gambled and won, and all their political connections and payoffs did exactly that, guaranteed their survival through TARP and other Fed actions.
Crony capitalism at it best.