Greenspan v. Taylor

Taylor.

Well, wait. There was no single cause. But easy credit certainly was a key component.

Here is a list of factors put together by Barry Ritholtz:

1. Ultra low interest rates led to a scramble for yield by fund managers;
2. Not coincidentally, there was a massive push into subprime lending by unregulated NONBANKS who existed solely to sell these mortgages to securitizers;
3. Since they were writing mortgages for resale (and held them only briefly) these non-bank lenders collapsed their lending standards; this allowed them to write many more mortgages;
4. These poorly underwritten loans — essentially junk paper — was sold to Wall Street for securitization in huge numbers.
5. Massive ratings fraud of these securities by Fitch, Moody’s and S&P led to a rating of this junk as TripleAAA.
6. That investment grade rating of junk paper allowed those scrambling bond managers (see #1) to purchase higher yield paper that they would not otherwise have been able to.
7. Increased leverage of investment houses allowed a huge securitization manufacturing process; Some iBanks also purchased this paper in enormous numbers;
8. More leverage took place in the shadow derivatives market. That allowed firms like AIG to write $3 trillion in derivative exposure, much of it in mortgage and credit related areas.
9. Compensation packages in the financial sector were asymmetrical, where employees had huge upside but shareholders (and eventually taxpayers) had huge downside. This (logically) led to increasingly aggressive and risky activity.
10. Once home prices began to fall, all of the above fell apart.

Cato i advise you to save yourself some time by never listening to Greenspan.

The problem began when Nixon took the Dollar off Gold Standard in the 70s and US moved into the era of bubble blowing.

The exact mechanism used to create the real estate bubble is irrelevant because where there is a will there is a way ...

And there is always a will to blow bubbles ! Jefferson lamented : "I wish it were possible to obtain a single amendment to our Constitution ... taking from the federal government their power of borrowing."

Thomas Jefferson lived before John Maynard Keynes and the development of modern economics, so he can be forgiven this ignorant statement. But I am confident that Jefferson's mind was nimble and honest enough that he would have accepted the wisdom of Keynesian economics.

I say that because I am a great fan of Thomas Jefferson.

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