Work

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

Year: 2012

Type: report

Abstract: We present 12 facts about the mortgage crisis.We argue that the facts refute the popular story that the crisis resulted from finance industry insiders deceiving uninformed mortgage borrowers and investors.Instead, we argue that borrowers and investors made decisions that were rational and logical given their ex post overly optimistic beliefs about house prices.We 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.

Source: National Bureau of Economic Research

DOI: 10.3386/w18082

Authors: Christopher Foote, Kristopher Gerardi, Paul Willen

Institutions: Federal Reserve Bank of Atlanta, National Bureau of Economic Research, Federal Reserve Bank of Boston

Language: English

Topic: Housing Market and Economics

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W2106127259

Cites: 79

Cited by: 213

Related to: 10