Is America’s housing finance crisis finally behind us? On the surface, there seem to be many positive changes, but when one looks a little deeper, the fundamental problems that got us into the mess have not been addressed. Unless major changes are made, it won’t be long before we experience another mortgage-related banking crisis.
Though central bankers and treasury officials like to pretend that banking crises happen as a result of random “shocks” that cannot be foreseen, the grim truth is that they are predictable events. They occur when two conditions occur simultaneously: banks take on high levels of risk in their loans and other investments, and regulators allow banks to back those loans and investments with low levels of capital.
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