Who's to blame for the housing bubble

Helicopter Ben says it wasn't the low interest rates:

Regulatory failure, not low interest rates, was responsible for the housing bubble and subsequent financial crisis of the last decade, Ben S. Bernanke, the Federal Reserve chairman, said in a speech on Sunday.

“Stronger regulation and supervision aimed at problems with underwriting practices and lenders’ risk management would have been a more effective and surgical approach to constraining the housing bubble than a general increase in interest rates,” Mr. Bernanke said in remarks to the American Economic Association.

Barry Ritholtz says, not so fast Ben:

Inadequate regulations and “nonfeasance” in enforcing existing regs were, as Chairman Bernanke asserts, a major factor. But in the crisis timeline, the regulatory and supervisory failures came about AFTER the 1% Fed rates had set off a mad scramble for yields. Had rates stayed within historical norms, the demand for higher yielding products would not have existed — at least not nearly as massively as it did with 1% rates.

If the Fed Chief wants to avoid seeing this occur again, he needs to recognize that this was not a single factor event; rather, this was a complex event set off by numerous factors.

The sooner we learn that, the better a grasp we will have on what actually happened . . .

All I know for sure is they had better figure it out and do something real about it or it will surely happen again. And whether or not the interest rates were responsible, we clearly need much, much stronger regulatory controls on the industry. I'm fine with starting there.

[More posts daily at The Detroit News]