Boom and Bust Banking: The Causes and Cures of the Great Recession by David M. Beckworth

Part I
Creating the Great Boom

Monetary Policy and the Financial Crisis
Lawrence H. White
1
An Overview
The u.s. housing boom of 2001–06 and the subsequent 
bust were not the results of laissez-faire or deregulation in the monetary and 
financial system.
 The boom and bust were the results of the interaction of an 
unanchored government fiat monetary system with a perversely regulated finan-

cial system. Overly expansionary monetary policy fueled imprudent lending that 
was incentivized by “too-big-to-fail” and other regulatory distortions.
President George W. Bush famously explained the boom and bust by anal-

ogy (off the record, but someone in the room made a cell phone recording): 
“Wall Street got drunk! It got drunk and now it’s got a hangover.” 
 To extend 
the metaphor, it was the Federal Reserve’s cheap credit policy that spiked the 
punchbowl. The housing boom-and-bust cycle of 2001–07 was driven by Fed-

eral Reserve credit expansion. 
To use a much-repeated phrase, the Fed in 2001–06 kept interest rates 
“too low for too long” by injecting too much credit. From 2002 to 2005, the

Boom and Bust Banking: The Causes and Cures of the Great Recession by David M. Beckworth