“Figuring out how we’ve reached this point is not easy. One choice is to blame laissez-faire policies, an argument that’s been invoked by everyone from notoriously pessimistic economist Nouriel Roubini and reporters at the New York Times to French President Nicolas Sarkozy.
On the other hand, the number of pages of federal regulations has swelled, not shrunk, over the last decade.
A new book by Thomas Woods called Meltdown (Regnery Publishing, 2009) provides a more fulfilling account of what went wrong, why it happened, and who’s to blame. Woods holds a doctorate in history from Columbia University and is the author of the bestselling, iconoclastic The Politically Incorrect Guide to American History.
Woods’ latest book makes a strong argument for laying the blame squarely on the shoulders of Washington politicians and regulators. One chapter is titled “How Government Created the Housing Bubble,” and points to special privileges granted to Fannie Mae and Freddie Mac, a federal law allowing tax-free capital gains, and the Community Reinvestment Act’s incentives for banks to make bad loans.
The ultimate culprit, in Woods’ view, is the Federal Reserve. In 2001, he writes, “Fed chairman Alan Greenspan sought to reignite the economy through a series of rate cuts… the new money and credit overwhelmingly found its way into the housing market, where artificially lax lending standards made excessive home purchases and speculation in homes seem to many Americans like good financial moves.”
This is not a unique criticism. Many economists, including Stanford University’s John Taylor, have charged that the Federal Reserve kept interest rates artificially low and that the housing boom and bust could have been avoided with more prudent government policies. At a congressional hearing last fall, some Democratic politicians made similar allegations.”