Survey: Interest rates fueled the meltdown

The Wall Street Journal reported Wednesday 42 business economists indicated low interest rates established by the Fed and passed to customers through banks contributed to the building boom. In contrast, 12 business economists indicated the low rates were not part of the problem.

Academic economists were split with 13 indicating low rates were a factor and 14 indicating they were not.

"The 'bubble' didn't really get going until 2005-06, by which time the Fed had raised rates to more or less normal levels," said Kenneth Kuttner of Williams College.

But Carnegie Mellon University professor Marvin Goodfriend said, "a somewhat tighter stance of interest rate policy then could have cut off the last year or so of the house price appreciation and prevented the worst part of the subsequent adjustment."

Fed Chairman Ben Bernanke, who was on the Fed board when low interest rates were established, said in a speech last week, "an explosion of exotic mortgages and a flood of cash coming into the U.S. from abroad ... were the crucial drivers of the housing bubble."

Copyright 2010 by United Press International.