Economists’ views on interest rates, housing bubble
From the Wall Street Journal:
“The connection between low rates and the housing bubble was indirect. Low rates encouraged homeowners to refinance mortgages. To handle this wave of refinancing, financial institutions expanded capacity to write mortgages (roughly doubling employment in the mortgage-writing industry). After the refinancing wave passed, financial institutions kept the expanded mortgage-making resources in use by finding new ways to extend mortgages, which led to the creation of exotic mortgages and the extension of loans to hitherto unqualified buyers.”
For the full story, please visit http://blogs.wsj.com/economics/2010/01/12/economists-views-on-interest-r....