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Thursday, May 03, 2012

"Why Did So Many People Make So Many Ex Post Bad Decisions? The Causes of the Foreclosure Crisis"

I haven't have time to read this today, but thought I'd note it in case someone does have time and wants to comment on the methodology and/or results:

Why Did So Many People Make So Many Ex Post Bad Decisions? The Causes of the Foreclosure Crisis, Public Policy Discussion Paper No. 12-2
by Christopher L. Foote, Kristopher S. Gerardi, and Paul S. Willen
: This paper presents 12 facts about the mortgage market. The authors argue that the facts refute the popular story that the crisis resulted from financial industry insiders deceiving uninformed mortgage borrowers and investors. Instead, they argue that borrowers and investors made decisions that were rational and logical given their ex post overly optimistic beliefs about house prices. The authors then show that neither institutional features of the mortgage market nor financial innovations are any more likely to explain those distorted beliefs than they are to explain the Dutch tulip bubble 400 years ago. Economists should acknowledge the limits of our understanding of asset price bubbles and design policies accordingly.

    Posted by on Thursday, May 3, 2012 at 08:21 AM in Economics, Housing | Permalink  Comments (68)

          


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