Barron’s Gene Epstein sent the following letter to the New York Times. I share it here with Gene’s kind permission.
To the Editor:In his column on the film, “The Big Short” (“‘The Big Short,’ Housing Bubbles and Retold Lies,” Dec. 18), Paul Krugman declares that the housing bubble “was largely inflated via opaque financial schemes that in many cases amounted to outright fraud.”This causal analysis is directly contradicted by an alternative view previously expressed in the New York Times: that the housing bubble was largely inflated by policies of the Federal Reserve.“To fight this recession,” wrote a New York Times columnist on Aug. 2, 2002, “the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.”In a blog on that column posted on June 17, 2009, this same columnist observed: “What I said was that the only way the Fed could get traction would be if it could inflate a housing bubble. And that’s just what happened.”The columnist who wrote those words: Paul KrugmanGene Epstein
Economics & Books Editor
The above originally appeared at Cafe Hayek.