Lack of Government Oversight

“Monetary excesses were the main cause of the boom. The Fed held its target interest rate, especially in 2003-2005 well below known monetary guidelines that say what good policy should be based on historical experience……..The effects of the boom and bust were amplified by several complicating factors including the use of subprime and adjustable-rate mortgages, which led to excessive risk taking was encouraged by excessively low interest rates………Adjustable rate, subprime and other mortgages were packed into mortgage-backed securities of great complexity. Rating agencies underestimated the risk of these securities……Other government actions were at play. The government-sponsored enterprises Fannie Mae and Freddie Mac were encouraged to expand and buy mortgage-backed securities, including those formed with the risky subprime mortgages……Early on, policy makers misdiagnosed the crisis as one of liquidity and prescribed the wrong treatment.” (Quote from Wall Street Journal, February 9, 2009 )