The bubble was born in the US largely due to well-intended but misguided housing policy. I'd argue that the Federal Reserve`s policy of credit expansion from 2001-2004 was the biggest single cause for the creation of the bubble, but otherwise, spot on.
Thursday, March 21, 2013 5:23:48 PM
Where the banks are is irrelevant. That they got caught up in the financial bubble is. The bubble was born in the US largely due to well-intended but misguided housing policy.
Thursday, March 21, 2013 4:13:23 PM
"The banks created the financial crisis..."
1977-1995: Congress decided that more people shouls own homes and passed the Community Reinvestment Act which required banks to provide loans to low-income and minority borrowers.
1994: Banks were not loaning as much to low-income borrowers as Congress wanted, so Congress passed the Riegle-Neal Act which denied requests for interstate bank mergers to banks that were not incompliance with the Community Reinvestment Act.
1996: Banks still were not loaning as much to low-income borrowers as Congress wanted, so HUD instructed Fannie Mae and Freddie Mac (government owned corporations) that more than 40% of their loans must go to low-income borrowers.
2000 to present: Federal Reserve held interest rates at artificially low levels so as to encourage borrowing.
1990 to 2003: Loans issued by Fannie Mae and Freddie Mac grew from 25% of the mortgage market in 1990 to 50% in 2003.