Corporate & Securities Law

Who caused the subprime bubble?

Mian, Sufi, and Trebbi have and answer in The Political Economy of the Subprime Mortgage Credit Expansion:  the government, mortgage lenders and mortgage borrowers.  Here’s the abstract:

We examine how special interests, measured by campaign contributions from the mortgage industry, and constituent interests, measured by the share of subprime borrowers in a congressional district, may have influenced U.S. government policy toward the housing sector during the subprime mortgage credit expansion from 2002 to 2007. Beginning in 2002, mortgage industry campaign contributions increasingly targeted U.S. representatives from districts with a large fraction of subprime borrowers. During the expansion years, mortgage industry campaign contributions and the share of subprime borrowers in a congressional district increasingly predicted congressional voting behavior on housing related legislation. The evidence suggests that both subprime mortgage lenders and subprime mortgage borrowers influenced government policy toward housing finance during the subprime mortgage credit expansion.

But I’m sure Bretton James was involved somehow.

Full post as published by Truth on the Market on September 25, 2010 (boomark / email).