``Did we see liquidity pushed into the housing market? Of course we did. Not just the Federal Reserve's low rates in the mid-2000s (lower than the Taylor Rule recommended); we also saw the massive entry by Fannie and Freddie into the fringes of subprime, the most dangerous portion of the market.

The private sector created the housing bubble in the same sense that college students created bubbles in Smith's experiments: They voluntarily made the trades but Fannie, Freddie, and the Fed created a liquid, bubble-prone environment. ''

Comments: Be the first to add a comment

add a comment | go to forum thread