Explain how two federal agencies did not do their job and contributed to the housing collapse of 2007.

Correct Answer:

Two federal agencies that failed to do their jobs well before the housing collapse were the Federal Reserve and the Securities and Exchange Commission. The Federal Reserve kept interest rates low for a long period and did not do enough to restrain risky mortgage lending. It could have pushed banks to use stricter lending standards, but many bad loans were still made. The SEC also failed in its oversight role. It did not properly monitor major investment banks that were taking on too much leverage and buying large amounts of risky mortgage-related securities. Because these agencies did not act strongly enough, dangerous lending and excessive risk grew until the housing market collapsed in 2007.