Our worsening financial crisis was caused by the Fed's easy money policy and the politicization of mortgage lending, says former U.S. Senator Phil Gramm, writing in The Wall Street Journal.

In his lengthy and comprehensive analysis of what caused the recession, Gramm, now vice chairman of UBS Investment Bank, says former Fed chairman Alan Greenspan and his low interest rates did not over-stimulate the economy, as some critics charge — although it did cause problems in the housing sector.

Gramm also absolved himself, and the often-blamed Gramm-Leach-Bliley Act of 1999 — a repeal of the Depression-era Glass-Steagall Act — which erased the regulatory boundaries between banks, securities firms, and insurance companies.

Greenspan's easy money policy stimulated an already-booming housing market, Gramm points out. This resulted in double-digit increases in housing prices for six years.

Buyers then bought houses they couldn't afford, assuming subsequent refinancing when the house appreciated in value. And lenders assumed housing values would increase and could always be sold at a profit, thus assuring repayment of the loan, Gramm charged.

Looser underwriting standards became widespread, encouraging more shaky loans.

Many economists agree with Gramm's claim that easy money then is responsible for the problem now. Among them is Marc Faber, editor of "The Gloom, Boom & Doom Report."

In a recent edition of The Wall Street Journal, Faber wrote, "The Fed never truly implemented tight monetary policy [when it was needed]."