The Four Horsemen of the Financial Panic
From Americans for Tax Reform: No matter what one thinks of the financial bailout package, we ought to at least agree how we got here. Below are the real actors behind the mortgage panic of 2008:
1. Government-sponsored enterprises (GSEs). Fannie Mae, et al, bears a large share of the responsibility.
2. Easy money from the Federal Reserve. On January 3, 2001, the Federal Reserve cut the federal funds rate by 50 basis points, to 6.00%. They continued to do so until the rate hit a bottom of 1.00% on June 25, 2003.
3. Community Reinvestment Act (CRA). This legislation, first passed in 1977, gave federal regulators the power to encourage banks to issue loans to high-risk households and small businesses.
4. Mark-to-market accounting rules. This refers to an accounting practice that forces a balance sheet to value an asset at its current market price (that is, what it could be sold for at the time). Mark-to-market is an arbitrarily-restrictive accounting practice that should be scrapped for assets like securities which generate current income. Doing this alone would solve much of the problem.