Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/59225 
Year of Publication: 
2012
Series/Report no.: 
Public Policy Discussion Papers No. 12-2
Publisher: 
Federal Reserve Bank of Boston, Boston, MA
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.
JEL: 
D14
D18
D53
D82
G01
G02
G38
Document Type: 
Working Paper

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