The exact mix between the cheap money policy of the Fed (which allowed the prices of real estate to be bid up) and the unsound lending and guarantee practices of Fannie Mae and Freddie Mac is surely part of the overall story.

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The Fed could, for example, promise to keep rates at record lows until at least 2015, thus giving markets one more year of cheap money and loose monetary policy.

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Although an expansive monetary policy and the massive inflow of cheap money helped inflate the housing bubble, the financial crisis as we know it would not have occurred without the toxic effect of subprime lending.

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