Is government policy the key factor?

As I study the investment world over the past several years, I wonder (like most people) what factors were key to the huge decline in asset values.

Is it Wall Street greed?  Sure, to some degree.  Is it us consumers and our irresponsible spending levels?  Probably helped.

But is their a bigger factor that overrides these other factors?  I think so.  Government decisions sure seem to be a major contributor.  Back in the late ’90’s, Steven Holmes at the NY Times noted how the government significantly eased lending requirements at Fannie Mae and Freddie Mac so that more people could purchase homes.  Couple this with the Federal Reserve keeping interest rates artificially low, and you have a recipe for diaster.  Of course, these moves join together to slowly expand the bubble before it finally bursts.

So what is the next government move that will led to negative consequences?  Will the explosion in spending lead to inflation and reduction in the value of the dollar?  Will increased taxes and regulation depress the economy further?  Or will we merrily work out of this recession/depression like we have every other one?

I don’t know about you, but I would urge a much more cautious approach as we move forward.