By JD Breen
Premium Insights
September 18, 2025
"If money isn't loosened up, this sucker could go down."
- President George W Bush
Three disasters have defined this century. Each was precipitated, perpetuated, and exacerbated by people who used the crisis to accrue more power.
One calamity occurred as the millennium opened. The next as its first decade ended. And the third as this one started.
Our last installment discussed the initial catastrophe. Today, seventeen years after the Lehman Brothers collapse, we examine some causes and consequences of the second.
Predictable Pile-Up
The multi-decade fight against "terror" has cost trillions of dollars and millions of lives. Congress never declared these wars, which were funded by fake money counterfeited by the Fed.
This financial finagling precipitated a predictable pile-up on this century's road to perdition. As with any economic event afflicting billions of people, the 2008 financial crisis had many causes. But the main impetus was the Federal Reserve.
Under sound money, business cycles always occur within specific companies or industries. But they're relatively contained.
For a given product or particular market, desire ebbs and favor flows. Supply and demand wax and wane with resource constraints, competitive pressure, customer preference, and price extremes that cure themselves.
But for the entire globe to crest and crash on the same wave means an exogenous force caused a raucous wake. Widespread booms and busts... including the Great Depression and the stagflationary Seventies... have been more extensive and severe since the founding of the Fed.
But the two decade "Great Moderation" after the early '80s "Volcker shock" seemed to tame the business cycle. With his Black Monday bailout in 1987, Alan Greenspan created his eponymous "put" that made him the "maestro".
The Fed has repeatedly reprised his tune throughout this century. That makes sense. Counterfeiting is the only song they know. Like day drinking, speaking two languages, and tax avoidance, ripping people off is cool if you're rich but can cause problems if you're poor.
As David Stockton notes, the Fed balance sheet (the amount of money it's conjured) increased 35-fold since the advent of the "Greenspan put". Nominal GDP merely quintupled, with real GDP up only half that much.
After the tech bubble burst, the Fed did what it always does: created a new one. Greenspan again rode to the "rescue".
Primary Accomplices
Like a beach ball under water, the Fed forced interest rates below the level at which they'd have naturally floated. When markets made them let go, everyone got soaked.
In a startling move at the time (tho' in retrospect it seems like quaint restraint), Greenspan held rates at one percent for over a year. The result was the only recession on record in which house prices didn't fall. From that "lesson", politicians and bureaucrats encouraged borrowers to believe they never would.
During the first seven years of this century, more dollars were created than in the previous two centuries combined. In subsequent years, that ignominious record would be repeatedly eclipsed.
Much of this money flowed into mortgages, precipitating an unnatural rise in real estate prices (which was the idea). Easy credit attracted marginal speculators who had no business being in the market.
Not that the Fed didn't have help. Among its primary accomplices were a couple privileged, state-sanctioned ambiguities known as Fannie Mae and Freddie Mac.
These "Government Sponsored Entities" (GSE) purchase mortgages on the secondary market. With an implicit taxpayer backstop, they buy loans from originators, which provides those lenders additional funds to extend new loans.
This process prompts more mortgages than would otherwise exist, making it easier for people to "buy" homes they can't afford. Government laid the bait that lulled buyers into this trap.
The tax and regulatory benefits GSEs enjoy, plus an essentially unlimited line-of-credit from the U.S. Treasury, diverted resources and distorted markets by allowing these entities to raise money and buy mortgages more easily than private competitors could.
Under political pressure to increase home "ownership" among "disadvantaged" groups, GSEs also enabled lower lending standards by easing requirements on mortgages they bought. This encouraged more reckless loans, as originators knew they could offload them from their books.
Much as student loans and lower admission standards enticed millions into college who had no business being there, the Fed, GSEs, and crony legislation like the Community Reinvestment Act (CRA) and Equal Opportunity Credit Act attracted borrowers into mortgages they would never be able to afford.
"Generally Sound"
As Tom Woods noted in Meltdown, his definitive overview of the financial crisis, even the New York Times conceded these warped interventions "changed homeownership from something that secured a place in the middle class to something that ejected people from it."
Loose money and low standards (a natural consequence of loose money) affected prime loans too. In many cases it infected them first, and more quickly... which undermines the notion that lenders "preyed" on subprime borrowers.
Adjustable rate mortgages enticed creditworthy speculators and "flippers" to borrow more than they otherwise would. This allowed them to bid up prices, enjoy appreciation, and sell the property before teaser rates rose... all of which attracted more speculation.
This is what the government wanted. For two decades, both political parties, including President George W Bush, urged down payment requirements be subsidized, reduced, or ditched.
As these wishes were increasingly accommodated, Greenspan's successor, Ben Bernanke, assured us "lending standards are generally sound." The year George Bush asked lenders to dispense with down payments, the Fed dismissed the idea there was a housing bubble.
Former Chairman Greenspan encouraged borrowers to take advantage of adjustable rate mortgages (without warning that the adjusted rates would eventually take advantage of them).
And why not? For two decades the Fed had implicitly enticed (and explicitly backstopped) reckless behavior its counterfeiting encouraged. As the housing bubble inflated, the people pumping air lamented a lack of affordable homes.
When the burst bubble finally offered the remedy, lower prices became the one tonic that wasn't allowed. The people who caused the problem promptly pumped more of the debt and bailouts that produced the binge.
To the extent these "saviors" were criticized, it was for being too slow and stingy pouring the booze. As the hangover intensified, the bartenders decided to open the taps.