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The Political Economy of the U.S. Mortgage Default Crisis
Atif R. Mian UC Berkeley - Haas School of Business; UC Berkeley - Department of Economics; NBER Amir Sufi University of Chicago - Booth School of Business; NBER Francesco Trebbi University of British Columbia - Department of Economics; National Bureau of Economic Research (NBER) May 1, 2009 Chicago GSB Research Paper No. 08-17 Abstract: We examine the effects of constituent interests, special interests, and politician ideology on congressional voting behavior on two of the most significant pieces of legislation in U.S. economic history: the American Housing Rescue and Foreclosure Prevention Act of 2008 and the Emergency Economic Stabilization Act of 2008. Representatives from districts experiencing an increase in mortgage default rates are more likely to vote in favor of the AHRFPA, and the response is stronger in more competitive districts. Representatives only respond to mortgage related defaults (not non-mortgage defaults), and are more sensitive to defaults of their own-party constituents. Higher campaign contributions from the financial services industry are associated with an increased likelihood of voting in favor of the EESA, a bill which transfers wealth from tax payers to the financial services industry. Examining the trade-off between ideology and economic incentives, we find that conservative politicians are less responsive to both constituent and special interests. This latter finding suggests that politicians, through ideology, can commit against intervention even during severe crises. Working Paper Series Date posted: November 04, 2008 ; Last revised: June 02, 2009Suggested CitationContact Information
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