This is the Cato Daily Podcast for Tuesday, August 27th, 2019.

I'm Caleb Brown.

More than a decade after the housing crash that crippled financial markets,

what rules govern housing finance?

And are those rules helping to set the stage for another housing crash?

Cato's Diego Zulawaga comments.

Since the housing collapse in 2008, the there isn't really a clear-cut generally accepted theory about what

happened in general what do you view as essentially the causes of the financial collapse in 2008.

Well that's of course a very big subject and people will talk about

potentially the impact of monetary policy and the fact that interest rates were too low for too long.

They will talk about the inadequacy of supervision of banks, not necessarily that there was too little regulation, but that there was a lot of regulation

that wasn't effective and in fact may have actively harmed things as far as financial stability

was concerned.

But if we restrict the analysis to the housing market and mortgage markets in the United States,

which it is universally acknowledged, regardless of what interpretation what makes,

played a major role in the run-up to the crisis. I think a very important factor is

something called the affordable housing goals and these were politically set

targets that basically mandated for Fannie Mae and Freddie Mac, which are these enormous enterprises

that buy mortgages from banks and other lenders, for them to have a percentage of those loans that they bought go to low income underserved and other communities that didn't necessarily have the means to access a traditional mortgage loan.

And so what that translated to was what they called flexible standards, that is relaxing underwriting standards to meet those

affordable housing goals. Now the intentions I've no doubt were benevolent in

setting those targets I think the idea was to get more people into home ownership

...