Ask the Editors: Can't we Blame This Mess on Clinton?

Stephen Smith asks:

To what extent (if any) do you think that Clinton's 1997 tax break for home value appreciation created/fueled the real estate bubble?

Everyone's looking for some convenient policy villain for the current crisis, but the answer with this--as with just about every other regulatory change you can name--is "maybe a little, but not that much".  (Even the 2004 SEC decision to let banks lever up to 30-to-1, while certainly a bad idea, wasn't nearly sufficient to take much of the blame.  This thing had been building for years, if not decades, before that.)

Blaming the tax change is an attractive theory because house prices did start to depart from trend around then.  But the real inflection point is years later, in 2001.  And while the tax break undoubtedly sent a bad signal to the market, so did a dozen other things, from interest rates to all those home shows on TLC.