Thursday, November 06, 2008

What didn't cause the housing bubble

Via EconLog: Two recent popular scapegoats are not responsible for the housing bubble:
Robert Shiller wrote,
Dramatic home price booms since the late 1990s have been in evidence in Australia, Canada, China, France, India, Ireland, Italy, Korea, Russia, Spain, the United Kingdom, and the United States, among other countries.
He has charts suggesting that the Netherlands and Norway experienced greater booms than the United States. In his book The Subprime Solution, he has a chart that shows London house prices rising faster than prices in Boston.

What makes this a difficult fact is that so many explanations of the house price boom are U.S.-specific. It is hard to argue that the Community Reinvestment Act or the repeal of Glass-Steagall are what account for the home price booms in Norway or Spain.


  1. The bubble was caused by low interest rates, plain and simple. In the US, the low rates made mortgage fraud more profitable and extended the boom. But the Fed and the other central banks are 99% to blame. Alan Greenspan is the biggest screw-up in the history of mankind.

  2. Wait a minute!!!

    Low interest rates and the selling of these securitization and crappy mortgagages into crappy derivatives. Recognition of risk went out the door, compounding the mania. Booms and busts are normal. Letting them get so out of hand was the great problem, solved by regulation.

    Blaming CRA is a bunch of bunk. The basic requirement is to provide loans to the communities where deposits are taken. The point isn't to do ridiculous loans.