47 Pages Posted: 4 Nov 2008 Last revised: 2 Jun 2009
Date Written: May 1, 2009
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.
Suggested Citation: Suggested Citation
Mian, Atif R. and Sufi, Amir and Trebbi, Francesco, The Political Economy of the U.S. Mortgage Default Crisis (May 1, 2009). Chicago GSB Research Paper No. 08-17. Available at SSRN: https://ssrn.com/abstract=1291524 or http://dx.doi.org/10.2139/ssrn.1291524
By Andrew Lo