The Illusion of Reform and the Next Housing Crisis

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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