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As Government Officials Press Banks to Lend, What (if Anything) Are They Thinking?
...If they had given the matter any informed thought, they would have realized that outpourings of cheap credit lie at the root of the entire sorry situation. Recall how the Fed pushed the Fed Funds rate down to 1 percent in the wake of the dot-com bust of 2000-2002. With Fed credit available to banks for years on end at a negative real rate of interest, how could they resist plowing ahead with loans that normally would have seemed absurdly risky, especially when they could pass much of the rotten paper along to Fannie, Freddie, and other buyers in the secondary market? The rest, as they say, is history....