In the fall of 2007, when the U.S. economy first seemed in peril, I began answering reader queries here on the Business Desk. I still do so occasionally, but this page has expanded to include posts from eminent economists, "far-flung correspondents," and a variety of voices that have intriguing and/or useful things to say about economics, broadly defined. Please feel encouraged to respond to any and all of them.
How is the Fed to be blamed if financial institutions are reckless and greedy during periods of low interest rates?
City & State:
New York, N.Y.
Question/Comment: Many commentators have blamed the Fed for the mortgage mess. How is the Fed to be blamed if financial institutions are reckless and greedy during periods of low interest rates?
Paul Solman: You're cheating, Lloyd. This is two e-mails in a row. But good questions deserve answers.
The Fed is blamed because it kept interest rates low. That enabled financial institutions to be more reckless than if the cost of money had been high. In general, cheaper money means more loans, which then means looser terms. ("Greedy" is a loaded term, and has no more to do with the current situation than it did with the advent of Donkey Kong or the fall of Enron.)