During their House Financial Services Committee testimony yesterday, Geithner, Bernanke, and New York Fed President Bill Dudley got an interesting question from Rep. Joe Baca of California: What year did the financial system fall apart? Justin Fox has a compelling answer:

It was late in 2003 that subprime lending first truly exploded, and when Wall Street pushed aside Fannie and Freddie to become the main buyer of mortgage loans. It was in 2003 that house prices went from mere rising to outright climbing. It was around 2003-2004 that the Icelandic banking system first began growing like gangbusters. It was in 2003 that global trade began its sharp rise as a share of global GDP. It was in 2004 that Trader Monthly was founded. And so on. It was the beginning of the explosion in debt that left the financial system so staggeringly fragile.

Why then? I really don't know. I find the popular explanation that it was all Alan Greenspan's fault for keeping the Federal Funds rate at 1% in late 2003 and early 2004 pretty unsatisfactory. But I don't have a better one.

I, for one, am perfectly comfortable blaming Greenspan. Though, interestingly, a lot of people who have contempt for him now were pretty supportive of the low rates back then, at which point they were worried about deflation.

--Noam Scheiber