I’ve been having a blast guest-blogging over at Andrew Sullivan’s Daily Dish. If you haven’t seen it already, check out my fellow guest blogger Richard Posner’s latest post reacting to an e-mail from Alan Greenspan.
Creative Class
The source on how we live, work and play
May 25th, 2009 at 10:30 am
Posner points out that the housing bubble burst around the time interest rates began to rise. I think that may have been more effect than cause. The cuse was more he application of credit. New-fangled financial instruments along with the abandonment of responsible lending standards got people into homes they couldn’t afford.
Credit inflated the bubble, so it’s easy to see how interest rates would affect that bubble. However, I think it was the inability of the financial industry to increase the number of homeowners that led to the crash, because with a falling home ownership rate the double-digit appreciations were unsustainable. The expansion of credit pushed home prices up too fast for the lenders to keep up their “inventions.”