The conventional wisdom regarding the creation of federal housing programs during the Great Depression cites market failure as the key factor leading to government action. A review of the historical record regarding one program in particular, the Federal Housing Administration's insurance of real‐estate mortgages, suggests a more complex picture. Amortized loans were not created anew by the FHA but had been developed previously by various financial institutions; their use by national banks was restricted by law. What market failure occurred seems to have been induced, at least in part, by the federal government.
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Robert Lloyd (1994) studied this question.
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