The low interest rate fire

As for subsidizing housing, it’s hard to put that totally in a bad light. Adding liquidity to a market is usually thought of as a good thing and if run properly, they are simply intermediaries between the banks and the investors. In fact, a case could be made that they are very helpful and in some ways subsidizing the banks. They banks no longer hold homeowner debt, they simply pass it on to the market. They have become paper pushers making more on fees than on the carry trade. Therefore their incentive isn’t so much to make good loans, but rather to make a lot of loans. This has lead to a reduction in the credit worthiness of borrowers and the flexibility of loan terms. Those two factors, really add fuel to the low interest rate fire.

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