An expansive, detailed piece by Phil Gramm in the WSJ today.

He observes that too much money in the system and the Community Reinvestment Act (which gave subprime loans to people who couldn’t afford houses) which politicized the lending industry.
He says the deregulation he proposed and President Clinton signed had no bearing on the crisis and has never been explained.
The following are the money quotes from the article which you can get from my WSJ feed to the right or here.

In the 2001 recession, however, consumption and home building remained strong as investment collapsed. The Fed’s sharp, prolonged reduction in interest rates stimulated a housing market that was already booming — triggering six years of double-digit increases in housing prices during a period when the general inflation rate was low.

By the time the housing market collapsed, Fannie and Freddie faced three quotas. The first was for mortgages to individuals with below-average income, set at 56% of their overall mortgage holdings. The second targeted families with incomes at or below 60% of area median income, set at 27% of their holdings. The third targeted geographic areas deemed to be underserved, set at 35%.

The results? In 1994, 4.5% of the mortgage market was subprime and 31% of those subprime loans were securitized. By 2006, 20.1% of the entire mortgage market was subprime and 81% of those loans were securitized. The Congressional Budget Office now estimates that GSE losses will cost $240 billion in fiscal year 2009. If this crisis proves nothing else, it proves you cannot help people by lending them more money than they can pay back.

Restrictions on executive compensation are good fun for politicians, but they are just one step removed from politicians telling banks who to lend to and for what. We have been down that road before, and we know where it leads