Agree with livin’ on this. The low rates were a big part of what caused the non-existent lending standards as investors (including pension funds!) kept reaching for greater yield. The Fed’s easy-money policies are largely responsible for the problems with the public pension funds. Bernanke and Greenspan are FAR more responsible for the problems with the pension funds (and healthcare costs due to inflation???) than the public workers are.
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Why aren’t prices spiraling up and out of control across the country now? Not a year ago. Now. Investors have driven up prices in some markets (though investor buying has dropped off sharply in most markets, including SoCal). But better underwriting has kept prices in check. Interest rates are still a full point to a 1.5 points below where they were during that period.
If lenders hadn’t abandoned lending standards, there would be fewer loans for the pension funds to buy and they would have found alternate investments. Nobody forced lenders to make those loans. The Fed made a lot of mistakes and maintaining low interest rates may have been one of them. But they didn’t create the bubble or kill the pension plans. They were no more than a tiny piece of the puzzle.
