Tuesday, June 29, 2010

Size of the Mortgage Subsidy

Banks are often ridiculed for making home loans in the mid 2000s, when supposedly they should have known that housing prices would fall.

But banks were in a "heads: I keep all the winnings, and tails: I share the losses with taxpayers" situation, and it was rational to downweight the probability that housing prices would fall. This article quantifies some of the taxpayer help mortgage market participants expected in the contingency that housing prices fell.


Donald Pretari said...

"Shiller added that the mission of Fannie and Freddie should be severely cut back “so that they’re not helping middle-class homeowners, [but] they’re helping poor people get into the housing market.”

All of our programs should do this. That's why I support a Negative Income Tax.

Don the libertarian Democrat

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