One theory. Since the dot.com crash and 9/11 Greenspan was looking for something to stimulate the economy. The massive amount of equity in homes, when released was seen as an excellent way. The housing market is one of the pistons that drives the US economy, in two respects; it creates cash that is spent on consumer goods (good for the economy), and has developed a huge industry (financial, construction) around it, also good for the economy. Well, that’s what everyone thought. Where it seemed to go wrong, was that lowering interest rates lead to a speculative bubble, and the financial industry developed ahead of regulation, and ultimately is leading to a recession.
I think the whole notion of housing as being the driving force of an economy needs to be examined. One obvious failure of the system is the enormous amount of debt that has accumulated, and the shock waves it causes when left unchecked. So, in answer to the question, I would say “No”. However, with dependence of foreign oil, and a declining manufacturing base, there needs to be someway for the US economy to stay on top. Financial services are a way, but the regulators need to catch up with the avalanche of new financial instruments, and the industry itself needs to calm down, lick it’s wounds, and learn from it’s mistakes.
