I have three-video primers on price gouging and public choice, so I may as well do the same thing for the 2008 financial crisis (click here for Part I).

We’ll start with a video from Peter Wallison, which correctly notes how housing subsidies from Fannie Mae and Freddie Mac played a big role in causing the crisis.

The focus on Fannie Mae and Freddie Mac is very appropriate.

Those two government-created entities deserve a lot of blame for the crisis, as Wallison noted in a separae video I shared in 2019.

Not only were Fannie and Freddie responsible in part for the housing bubble, but they also got big bailouts. So taxpayers also were victimized.

Here’s a longer video from Brian Wesbury. It’s nearly 20 minutes long, but worth watching because he highlights the role of bad monetary policy.

The way I explain the financial crisis is to point out that the Fed created too much liquidity and caused interest rates to be artificially low.

The Fannie and Freddie subsidies then tilted the playing field so a lot of the excess liquidity flowed into the housing sector.

Last but not least, here’s a new video from Prager University that mentions the pernicious role of the Community Reinvestment Act.

I’ll close by explaining why politicians pursue foolish and dangerous policies.

Simply stated, people in Washington have very short time horizons. They think first and foremost about what will make them popular for the next election.

That’s why politicians tend to like easy-money policy. The short-term effects (such as lower interest rates) seem largely positive, so politicians downplay the long-run negative consequences (inflation, economic distortions, and higher interest rates).

Likewise, politicians like housing subsidies for the obvious reason that people buying and selling homes (as well as realtors and home builders) think they are helped. So that means votes and campaign contributions. And they ignore long-run consequences (misallocation of capital away from business investment, along with housing bubbles).

Sadly, because of these political factors, both Obama and Trump have pushed for Fannie Mae and Freddie Mac to boost housing subsidies. And Trump is badgering the Federal Reserve for easy-money policy.

P.S. Today’s column has focused on the government mistakes that caused the 2008 crisis. I suppose it’s worth mentioning that politicians then compounded the damage with mistaken responses (the TARP bailout, faux stimulus, Dodd-Frank, etc).

P.P.S. Speaking of bad responses, I’ve shared two videos (here and here) on why bailouts are misguided.

P.P.P.S. Last but not least, the Basel capital standards were another type of government intervention that led to the 2008 crisis.