Bernanke makes an interesting case that the main cause of the real estate boom and bust was exotic mortgages that were doomed to fail for many borrowers unless homes continued to appreciate.
That sounds about right. Bernanke’s self-serving point is that the too-low, too-long Fed interest rates were not a major cause of the U.S. real estate boom and bust.
Calculated Risk asks Bernanke if the other countries that had real estate booms and busts also had an explosion of wild mortgages.
{ 7 comments… read them below or add one }
Kyle 01.04.10 at 10:13 pm
Following his logic, I’m sure he would argue that the “low interest rate, low downpayment” financing that it going on now has nothing to do with the bounce we have seen in real estate…
John Wake 01.04.10 at 11:07 pm
Kyle, Well said!
Jason Rush 01.05.10 at 2:58 pm
Selective seperation. Works for “them”.
Kanuk 01.08.10 at 1:50 pm
Exotic loans are the problem. You don’t have to go too far, say Canada, where interest rates have been low for the past 5 years. The difference is the terms are usually fixed for 5 year periods, commonly amortized over 25 years, and you need 20% down payment.
In other words you borrow (or buy a house) when you can afford it, not because you can!
russ 01.10.10 at 11:20 pm
…this is the LAST guy you would ever want to believe….Bernanke has never been right. Look on youtube, everytime he says something, he is 100% wrong..just one example when he says…”Fannie Mae and Freddie Mac are sound”….and 6 days later they filed for bankruptcy…of course its all on purpose….what scares me is when he said “the fed is going to pull the money back that it pumped into the system …just in time…so the banks don’t circulate it into the economy”….but the money is already circulating as the banks are loaning it to the government to fund the deficit….say goodbye to the purchasing power of your money…..
russ 01.10.10 at 11:21 pm
To Kanuk…
Exotic loans existed here, and still exist, because they were/are backed by Fannie and Freddie…..
John Wake 01.11.10 at 1:19 am
russ, Putting Benanke, I’ll-pull-the-punch-bowl-away-don’t-worry-about-inflation quotes next to the other quotes is pretty scary.