In a previous post on how the housing bubble grew, I mentioned two potential guilty parties: banks and individuals. I should have added the role of government to the equation. Uncle Sam was complicit through its drastic loosening of the fed funds rate in the post-dotcom bubble. The government, through friends Fannie and Freddie, also encouraged insane lending and scooped up over half the mortgages originated.
This will be written in history as one of the more memorable unintended consequences of government intervention.
Image source: http://www.princeton.edu/~pkrugman/fed-funds-rate.png
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