The Financial Crisis Was Housing, not Subprime, and There Is Much More That the Fed Can Do

A front page piece in the NYT compared the current turmoil in financial markets with the situation in the fall of 2008. It referred to the 2008 crisis as being a subprime crisis. While subprime mortgages took the biggest hit, prime mortgages also defaulted at rates that were many times higher than expected.

The piece also said that the Federal Reserve Board is largely out of ammunition in terms of its ability to counter a crisis. This is not true. The Fed could take far more aggressive...