April 30, 2009

Greed or Stupidity?

What are the roots of the big housing debacle and subsequent banking crisis?

Some, like Fr. Cantalamessa, say we should look at greed. Which is certainly a likely scenerio. I think the banks saw the money the hedge funds were making and wanted a piece of that riskier action.

But there's also a huge element of stupidity. Columnist David Brooks argues that stupidity, rather than greed, was the root cause. And a video has recently turned up shows that Barney Frank (who presumably did not profit from the housing industry the way his Senate companion Chris Dodd did) said in 2005 that there could be no such thing as a housing bubble.

His was the conventional wisdom of the time: there could be no systemic, nationwide decline in housing prices. And that's the hinge on which all the huge bets were made.

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