Why did so many people make so many ex post bad decisions?: the causes of the foreclosure crisis

Christopher Foote, Kristopher Gerardi and Paul Willen

No 12-2, Public Policy Discussion Paper from Federal Reserve Bank of Boston

Abstract: 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.

Keywords: Mortgage loans; Global financial crisis; Housing - Prices; Foreclosure (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-hpe and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (70)

Downloads: (external link)
http://www.bostonfed.org/economic/ppdp/2012/ppdp1202.htm (text/html)
http://www.bostonfed.org/economic/ppdp/2012/ppdp1202.pdf (application/pdf)

Related works:
Working Paper: Why did so many people make so many ex post bad decisions? the causes of the foreclosure crisis (2012)
Working Paper: Why Did So Many People Make So Many Ex Post Bad Decisions? The Causes of the Foreclosure Crisis (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedbpp:12-2

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Public Policy Discussion Paper from Federal Reserve Bank of Boston Contact information at EDIRC.
Bibliographic data for series maintained by Catherine Spozio ().