CA Renter, private lenders could not compete with loans from FNMA or Freddie that give away govt guarantees. Because of that, private lenders could only operate succesfully at the margins of the market. In a rational market, they would not receive much funding for these marginal loans. Enter the Federal Reserve’s easy money policy, and you go from a normal housing cycle to an unprecedented bubble.
I sure hope that serious economists, minus the political hacks on either side, will move to a consensus in the next year or two on the most important underlying causes of this financial crisis. If Dodd, Frank,and Schumer aren’t fingered, along with the “deficits don’t matter” Republican group, then we are guaranteed to have a repeat, in housing or elsewhere.
