

“He was completely wrong in his assessment of what created the housing bubble,” Schiff said. “He basically said that the low interest rates from the Federal Reserve had nothing to do with it. He said it was the proliferation of adjustable rate mortgages or interest-only mortgages.”



In his Sunday speech, Bernanke said: “House prices began to rise in the late 1990s, and although the most rapid price increases occurred when short-term interest rates were at their lowest levels, the magnitude of house price gains seems too large to be readily explainable by the stance of monetary policy alone." Instead, he pointed to “exotic types of mortgages and the associated decline of underwriting standards” as reasons for the housing bubble.



“That’s completely wrong,” said Schiff, a financial analyst. “The only reason that so many people took out adjustable rate mortgages was because they were so much less expensive than the fixed rate mortgages because of the Fed’s low interest rates.” He continued, “You can’t go out there and say that low interest rates had nothing to do with it and then blame it on the mortgage products that only existed because of the low interest rates. How can he not see that?”



Schiff, who served as an economic adviser to Rep. Ron Paul's (R-Texas) 2008 presidential campaign, is vying against former WWE CEO Linda McMahon (R) and former Rep. Rob Simmons (R) for the GOP nod to face Sen. Chris Dodd (D).



“What we need is less regulation,” he said. “We don’t want government interfering with market forces. That's why we had a housing bubble.”



He cited the low interest rates maintained by the Fed and the mortgages guaranteed by Fannie Mae and Freddie Mac as an example of government interference in the market. “The Fed kept short term interest rates low enough so that people could qualify for a mortgage based on the teaser [interest] rate and then the government guaranteed that mortgage even though they knew going in it would ultimately end in default," he said. “Without the Fannie and Freddie guarantees and without the low interest rate there never would have been a housing bubble."

