Actually, they did on several levels.

The 1% federal funds rate stoked greed, but that didn’t mean that banks had to start issuing loans with no money down, no documentation.

Nowhere did anyone put a gun to their heads and say, “take no-doc loans!!”

Absolutely it did! SImply put, lower rates means that banks have to loan more money in order to achieve the same returns.

This mortgage market collapse isn’t the cause of our economic problems…it is only a symptom.

http://www.washingtonpost.com/wp-srv/opinions/cartoonsandvideos/toles_main.html?name=Toles&date=10082008&type=c

You are correct to bring up the foreign markets – in truth, that is the reason why anyone would even think about putting 700B or 1T toward the bailout. The debt would bankrupt us indeed if all the foreign investment left the US. But we’re not alone in this credit crisis – the entire system is structured to make money on other people’s money. It’s not just us dependent on loans to subsidize a higher standard of living. It is the modern business model – leverage. It’s insane that the financial industry was so heavily leveraged. Who saves up and buys things on cash anymore?

The dollar hegemony is on its deathbed, indeed.

We also shouldn’t forget about foreign countries lending us incredible amounts of money to finance our consumption-on-credit way of life. Without the post-WWII dollar standard for global security detail quid pro quo, our entire modern lifestyle would never have been possible.

And when the global financial system abandons the dollar standard, things will never be the same.

This is a money and banking crisis, as has been true of most economic bubble trouble in history.

Don’t blame the athlete when the steroids are shoved down his throat.

No one should be suprised that a Wizard of Oz-based money economy is intrinsically unstable and perpetually weeks away from implosion.

A free market corrects itself.

Bernanke and Greenspan spent the last 10 years lowering rates every time the stock market tried to correct even slightly.

Therefore, America is not a free market.

All that other stuff – hedge funds, mortgage crisis,greed, excess, fraud…only symptoms of the core issue.

At the core? Price controls create shortages.

http://bigpicture.typepad.com/comments/2008/10/misunderstandin.html

“The CRA is not remotely one of the proximate causes of the current credit crunch, Housing collapse,and mortgage debacle. As I detailed in Barron’s, there is plenty of things to be angry at D.C. about — but this ain’t one of them.

If you were to ask me to reveal the prime causative factor for the Housing boom, I would point you to Fed Chairman Greenspan taking rates to 1%, and then leaving them there for a year. The prime factor in the bust was nonfeasance on the Fed’s part in supervising bank lending, allowing banks to give money to people who couldn’t possibly pay it back.”

We should take care to put blame where it belongs. The kinds of loans under the CRA program only constitute at most 25% of the loans involved in this crisis. It is primarily greed, laziness and people looking the other way on these things, and the eventual inability to regulate these CDOs and CDSs at all (thanks, Senator Gramm).

Absolutely true. We wouldn’t be in this position if Paul Krugman had been chairman.

Dozens of hedge funds have gone under in the last year. I expect more will soon. Because the funds are so totally unregulated, we know effectively nothing about what hedge funds bought or how much vulnerability they have. (In other words, Mallaby is lying when he implies any knowledge of whether funds bought bad assets).

Finally, hedge funds were counterparties on lots of these bad assets. If, for the sake of argument, it eventually turns out that they sold lots of crap to others, helping drag down the whole system, but were smart enough to avoid buying it themselves, is that good?

What you’re right about is that government policy was very complicit in this. But it’s more about the Fed flooding the economy with easy money then about Fannie and Freddie, who were not at the center of this. (They joined the subprime party quite late (2005-06), using as an excuse that the private sector was already fully behind this stuff).

Don’t get me wrong, I’m with you on Fannie and Freddie needing to have been taken out back behind the barn like Steinbeck’s Lennie years ago. (Putting all my cards on the table, Wright Patman was way ahead of you on the same being done to the unconsitutional monstrosity of 1913 that Wilson and Col. House foisted on post-Morgan year plan’s)

What galls me is the likes of Mallaby and Brooks current pivot to “regulation is the problem”, which is as mendacious as what you rightly accuse MyFriends McCain of doing. They have no problem with regulation as long as it is used to benefit those whose bidding they do. Screw everbody else. Which, according to Barton Bigg’s “Hedgehog”, is the raison d’etre of all those rugged John Galts out there bucaneering from Bermuda to San Moritz. There are no heros in this tragedy. Not even the hedgehogs and especially not there little mouthpieces in DC.