bostonbubble.com

[Xenos]

I don't have a lot of faith in macroeconomic analysis reaching the level of certainty you are seeking here. Maybe we can address it with hypotheticals - if in 2003 the fed raised rates so that mortgages were at rates of, say, 8%, would that have ameliorated the bubble?

I am not convinced that it would, because the widespread lending of interest-only loans to NINJAs would still have happened. Maybe it would be worse because the mortgage-backed securities produced would have yielded more, been more profitable, and been more widely used, displacing and undermining traditional FNMA standards even further. Those loans would cost more, but not that much more compared to the windfall that the bubbling market provided.

So one could argue that the collapse of underwriting standards, a/k/a the thorough corruption of Wall Street and the GSE, was a much more proximate cause of the bubble than recklessly low interest rates.

Can the legal and regulatory environment be quantified in such a way as to integrated into an economic analysis? I don't think so, but I am way out of my area of expertise here.

[GenXer]

Nobody knows what would have happened. All of this is speculation, nothing more. What we do know is that under certain circumstances, raising interest rates fast (and I think that's the key here - the speed with which the rates are raised) may have a negative effect on house prices, especially in the presence of a weak economy (i.e. high unemployment). This is not a statement of fact - this is a hypothesis that we'll probably get a chance to test sometime down the road.

[balor123]

[balor123]

[balor123]