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This Element is an excerpt from Financing the Future: Market-Based Innovations for Growth (9780137011278) by Franklin Allen and Glenn Yago. Available in print and digital formats.
How the housing bubble really happened: an explanation that’s simple, clear, sensible, authoritative, and short!
The genesis of the housing bubble emerged from the ashes of the dot-com bust. To alleviate the downturn, the Federal Reserve drastically reduced interest rates, and the era of easy credit was under way. Other nations with massive foreign reserves were drawn to invest in the U.S., and, with Treasuries offering only meager returns, they began to eye mortgage-backed securities as a “safe” vehicle offering higher yields....