[quote=SK in CV][quote=CA renter]It wasn’t the availability of these investments that caused the demand for them. It was the demand (fueled by the Fed’s low rates) that caused these mortgage (and related) investments to come to the market.
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That’s like saying illegal drug dealers have no responsibility for selling drugs, it’s the drug users. If the demand wasn’t so high, they wouldn’t be dealing.[/quote]
And that would also be true. No demand, no supply. You could have all the dealers in the world trying to sell drugs, but if nobody bought them, the dealers and drugs would disappear.
OTOH, if you tried to eliminate the dealers without affecting the demand…well, we’ve seen how successful the “War on Drugs” has been.
That’s not to say that there shouldn’t be regulations and restrictions on the supply side, but those products would not have been as prevalent, nor as damaging, if the Fed hadn’t poured on the gasoline and spurred demand.
As you know, many institutional investors “need” a certain return. They can go a year or two with sup-par returns, but if other investment managers are making hay with the new, “innovative” investment vehicles, then the “conservative” managers will find themselves out of a job if they don’t meet or beat those same returns over time. The Fed essentially forced the institutional investors (including pension funds) into the riskiest investments possible. This is what has caused the large losses in the pension funds, and the blame for this has been redirected toward the hapless employees who had NOTHING AT ALL to do with asset allocations or return assumptions (that would be the PRIVATE MARKET who was selling these investments to the funds via their well-connected insiders and lackeys).
The Fed was not only responsible for the credit/housing bubble, but the stock market bubble in the late 90s as well (as a result of the Fed’s/regulators’ inaction and supposed belief that bubbles don’t exist until they have already burst) — which led to the outsized gains during the bubble which enabled the irresponsible pension boosts to be rolled out at the height of that bubble. The stock market bubble and housing/credit bubbles are largely why we’re in the mess we’re in today. They’ve also managed to mask the real problems with our economy, and enabled the supply-siders to continue to game the system over the past couple of decades. Without the Fed, we would have been forced to deal with the underlying problems within our economy instead of playing “Las Vegas” and pretending that we were seeing real, sustainable “growth” during all these years.
