Evaluating Policies to Prevent another Crisis: An Economist's View

Paul Willen

No 20100, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: I consider four policies created to address the financial crisis: (1) the ability-to-repay requirement in mortgage underwriting; (2) reform of rating agency compensation, (3) risk retention in securitization, and (4) mandatory loan renegotiation. I show that according to standard models, policies (1)-(3) do not address the standard asymmetric information problems that afflict financial markets. Policy (4) could reduce the deadweight losses associated with asymmetric information but requires that policy makers allocate gains and losses.

JEL-codes: D61 D82 G21 G28 (search for similar items in EconPapers)
Date: 2014-05
New Economics Papers: this item is included in nep-cta and nep-hpe
Note: EFG
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Published as in Cato Papers on Public Policy

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