Reading Mankiw these days is like exercising your obliques, it's so opaquely not his, a reader's digest.
Anyway, on the very same day that (a) BOA settles an $8.4 billion fraud lawsuit and (b) there is testimony on the Hill that an SEC relaxation in 2004 of capital requirements helped to inspire sugar-plum leverage levels on Wall Street, Mankiw draws attention to some guy who thinks it was all because of ... monetary policy, which made greedy and risky mavens out of the helpless-by-competition managements and all-around do-gooders:
So the first cause of the crisis lies with the Fed, not with deregulation. If too much money was lent and borrowed, it was because Chinese savings made capital cheap and the Fed was not aggressive enough in hiking interest rates to counteract that.
Just savor that morsel for a moment. To "solve" the so-called Greenspan conundrum, the Fed should have hiked short-term rates (inducing the USA's key lenders to lend short-term, while raising the Treasury's borrowing costs?), to counteract Chinese willingness to lend at attractive rates, whilst basing their monetary action and Fed credibility on a theory about competitive, destabilizing overleveraging and shabby credit underwriting that had yet to occur ...
Mankiw should stick to the GOP line of proposing unpaid-for tax "cuts" to solve every problem, no matter how big, don't you think?
