Wall Street to Blame, Again?

A study published by UC Irvine's School of Business at the end of last month indicates that low interest rates and sub-prime interest rates were not the major factor in the 'credit crisis' we have been experiencing.  Instead, they look to the risky asset backed securities created by Wall Street firms to fill a need created by conforming loan limits that were lower than market values.

Prior to 2003, basic economic factors were the primary driver of housing prices, including low unemployment rates, expanding household incomes and population growth.  In 2003, changes at Fannie and Freddie caused them to be a bit more restrictive with their lending.  This void was filled by creative asset backed and mortgage backed securities by Wall Street firms who were willing to accept higher levels of risk, which they were able to package and sell for considerable profits.

What is also interesting about this study it finds that low interest rates were not a significant driver of prices.