My latest column for the Atlantic looks at the commercial real estate crash and comes to the conclusion that it effectively undermines the major narratives that many people have adopted to explain the residential bubble. Though the commercial real estate bubble was smaller in scope than the residential one, it was characterized by essentially the same pathologies: rising prices, stupid banks, and stupid borrowers.
Yet we can't blame this on predatory lenders tricking the unsophisticated into unwise loans, because these were basically all professionals. Nor can we argue that banks were willing to write toxic loans because they were just going to sell the garbage off to investors; a much smaller percentage of commercial mortgages were securitized (though that percentage did increase as the bubble inflated). And we certainly cannot blame them because they "should have known better" than their borrwers, who usually had more experience than the banks in pricing commercial real estate.
Somehow, everyone got stupid all at once.
To see just how tightly linked the bubbles were, look at this graphic posted by Paul Krugman:
Krugman points out that this also gives the lie to the theory that the gubmint dunnit with some combination of the CRA and implicit guarantees to Fannie and Freddie. Everyone went crazy all at once, for reasons that aren't entirely clear, but neither the "evil banks" or "evil government" theory has much explanatory power when you look at the residential and commercial trends together.