This is a really interesting article arguing that the 2008 economic crisis was not caused by cheap credit or foreign capital inflows but rather overtightening of lending standards for homebuyers. Please, do read

He wrote a whole book. It’s extremely good. I’ve never really seen it discussed in many places.

I read the whole damn thing and I am not certain I completely follow his logic. The standard explanation for the recession in my mind is as follows:

1. Cheap credit, loose lending, and deregulation led to inflated home prices.
2. When interest rates rose, it became clear that many of the home loans were bad and would default
3. When people started to default on their mortgages home prices and the value of the loans backing them fell
4. Because the finance industry was so invested in CDOs and other derivatives of the mortgages the finance industry nearly collapsed as well
5. Banks tightened their lending to decrease risk as they grappled with the losses from mortgage defaults.
6. The rest of the economy suffered due to cascading effects of banks tightening their lending and the failure of a couple large financial institutions (e.g. Bear Sterns, Lehman Brothers, etc)

Is his view that there was no housing bubble and that the job losses from construction due to the financial panic in 2008 led to the recession? That new home construction should have continued and the banks should have continued to loan money for mortgages under the same pre-2008 conditions? Maybe I have just been listening to the wrong sources for too long, but if you look at FRED’s home price index charts, the rate at which home prices increase jumps prior to the crisis. Admittedly this doesn’t necessarily mean there was a bubble, but it does stand out in the plot.

Further, I don’t like that he just dismisses that home construction and manufacturing job losses took place in entirely different areas. It doesn’t seem to me like you can just hand wave that away. While we definitely overcorrected by not building enough homes in the years post crisis, I would need to see stronger evidence to buy his explanation.