What Lessons Can We Learn From the Boom and Turmoil

The current financial crisis undoubtedly will inspire a great deal of research in the years ahead, and it may take some time before any-thing like a professional consensus emerges on causes and conse-quences. After all, it took several decades to document the causes of the Great Depression, and recent research continues to provide new perspectives.1 Nonetheless, I believe the central questions that are likely to occupy researchers are plainly in view, and some tentative lessons have emerged already. And in any event, legislators are not likely to await the fruits of future scholarship. I will divide my discussion into two parts, reflecting two distinct time periods—the boom in housing and housing finance and the subsequent turmoil in financial markets—and then conclude with some thoughts about what lies ahead. The Boom in Housing Finance The expansion in mortgage lending that preceded the recent tur-moil in financial markets is best viewed as a component of the long boom in housing activity that began in the mid-1990s and peaked in Cato Journal, Vol. 29, No. 1 (Winter 2009). Copyright © Cato Institute. All rights reserved. Jeffrey M. Lacker is President of the Federal Reserve Bank of Richmond. The views expressed herein are his and are not necessarily shared by others in th