ON-Lion Letter

The 2008 financial crisis -- like the Great Depression -- was a world-historical event.  What caused it will be debated for years, if not generations.  The conventional narrative is that the financial crisis was caused by Wall Street greed and insufficient regulation of the financial system.  That narrative produced the Dodd-Frank Act, the most-comprehensive financial-system regulation since the New Deal. 

There is evidence, however, that the Dodd-Frank Act has slowed the recovery from the recession.  If insufficient regulation caused the financial crisis, then the Dodd-Frank Act will never be modified or repealed; proponents will argue that doing so will cause another crisis.

A competing narrative about what caused the financial crisis has received little attention.  This view contends that the crisis was caused by government housing policies.  Peter J. Wallison's Hidden in Plain Sight:  What Really Caused the World’s Worst Financial Crisis and Why It Could Happen Again, new from Encounter Books, extensively documents this view. 

For example, Hidden in Plain Sight shows that in June 2008, before the crisis, 56% of all mortgages in the United States were subprime or otherwise low-quality.  Of these, 76% were on the books of government agencies such as Fannie Mae and Freddie Mac.  When these mortgages defaulted in 2007 and 2008, they drove down housing prices and weakened banks and other mortgage holders, causing the crisis.

Wallison is the Arthur F. Burns Fellow in Financial Policy Studies at the American Enterprise Institute (AEI) in Washington, D.C.

After his book becomes widely read, no one will be able to claim that the financial crisis was caused by insufficient regulation, or defend Dodd-Frank, without coming to terms with the data it contains.

Encounter Books is an activity of Encounter for Culture and Education, a nonprofit organization that is substantially supported by Milwaukee's Lynde and Harry Bradley Foundation, as are AEI projects.

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