This is a favorite of market fundamentalists, as government basically creates all economic problems, if only they would get out of the way and let the market do its magic..
It isn’t that simple, however. One bugbear of market fundamentalists has been the Community Reinvestment Act (CRA). Market fundamentalists argue that this forced banks to lend to people who could not afford a mortgage. There are several things wrong with this:
- The CRA exists since 1977
- There is no CRA in countries like Ireland, Spain, which experienced even bigger housing bubbles
- Only one out of the top 25 mortgage lenders was subject to the CRA
- There is no relation between the CRA and sub-prime mortgages
See detailed content in our forum