Way back in the last decade we had a huge housing bubble which was propelled in large part by junk loans that were packaged into mortgage backed securities (MBS) by Wall Street investment banks and sold all around the world. Unfortunately few people in policy positions are old enough to remember back to the this era, which is why they are now in the process of altering rules so that investment banks will be able to put almost any loan into a MBS without retaining a stake.
Pointer from Mark Thoma.
I have argued that the general trend of housing policy is to give Wall Street and the housing lobby, particularly the Mortgage Bankers Association, exactly what they want. Baker is one of the few economists on the left who is willing to speak up on this. When I suggested to an audience of conservatives that we needed to engage Brookings and the Urban Institute to study the effects of housing finance subsidies, people came up to me afterwards to say that they thought that those think tanks would not want to offend important donors.
Not disagreeing, but would like to point out the government policy promoting home ownership that contributed.Weren’t banks sued for not making sub-prime loans? It is never one thing that leads to disaster, but a chain of events. Bad policy in the name of ‘helping people’ combined with greedy bankers combined with consumer ignorance and helped along with a huge load of unintended consequences will always turn out poorly.