The central bank is directly responsible for the creation of the credit and housing bubble. They kept rates too low for too long, enabling the cheap credit to prop up consumption despite falling wages and make mortgages cheaper than they should be. The government also played a role with their regulations, but it was cheap credit that fuelled housing demand and speculation.
Wait. First off, interest rates were never as low as they are now (Dec 2008-present).
But... are you SERIOUSLY blaming the foreclosures on the Fed's borrowing rate and not to speculation in the private sector (including CDO's)?
The Fed doesn't even lend the money to the people; the banks do.
Ignoring the fact that rates have been way lower since then, I don't see how you can blame this on The Fed.
Grading a sub prime mortgage backed CDO as a AAA prime mortgage investment is fraud.
Being wrong isn't the same as committing fraud. Yeah, they were sub-prime mortgages but the investments were seen as safe largely because of the rising values of their collateral, because of the rapid increases in house prices. Looking into it, rating agencies actually LOWERED ratings from Q3 2007 to Q2 2008. I don't think that is a signal they were blatantly defrauding the People. Since S&P has a lawsuit against them now, I guess that's the best way we will tell.
That said, I'm not denying it is possible -- there was certainly motive there.
Our governments are essentially insolvent. The main thing funding UK/US government deficit spending is debt monetisation, our own central banks simply creating the money and "lending" it to our governments. Markets aside, if central banks stopped creating money tomorrow, our governments would be unable to fund their obligations. They would be unable to repay their debts, and would default.
Our deficit as percent to GDP has been way higher in the past.
Maybe I don't understand what you are saying... Do you mean if The Fed were to stop QE there would be a solvency crisis?
Or are you saying the fact that we can control our currency unlike some other countries (such as Spain) prevents this from happening.
I would agree with the latter, but if you're saying a lack of QE would cause a solvency crisis (at least in the US) I don't think I could buy it.
Admittedly, I don't know much about the UK specifically when it comes to this stuff.