IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/16107.html
   My bibliography  Save this paper

The Political Economy of the Subprime Mortgage Credit Expansion

Author

Listed:
  • Atif Mian
  • Amir Sufi
  • Francesco Trebbi

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.

Suggested Citation

  • Atif Mian & Amir Sufi & Francesco Trebbi, 2010. "The Political Economy of the Subprime Mortgage Credit Expansion," NBER Working Papers 16107, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:16107
    Note: POL
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w16107.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Thomas Philippon & Ariell Reshef, 2009. "Wages and Human Capital in the U.S. Financial Industry: 1909-2006," NBER Working Papers 14644, National Bureau of Economic Research, Inc.
    2. Claudio Morana, 2021. "A new macro-financial condition index for the euro area," Working Paper series 21-07, Rimini Centre for Economic Analysis, revised Sep 2021.
    3. Bombardini, Matilde & Trebbi, Francesco, 2011. "Votes or money? Theory and evidence from the US Congress," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 587-611, August.
    4. Bombardini, Matilde & Trebbi, Francesco, 2012. "Competition and political organization: Together or alone in lobbying for trade policy?," Journal of International Economics, Elsevier, vol. 87(1), pages 18-26.
    5. Atif Mian & Amir Sufi, 2009. "The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis," The Quarterly Journal of Economics, Oxford University Press, vol. 124(4), pages 1449-1496.
    6. Thomas Stratmann, 2005. "Some talk: Money in politics. A (partial) review of the literature," Public Choice, Springer, vol. 124(1), pages 135-156, July.
    7. Stratmann, Thomas, 2002. "Can Special Interests Buy Congressional Votes? Evidence from Financial Services Legislation," Journal of Law and Economics, University of Chicago Press, vol. 45(2), pages 345-373, October.
    8. Tripathi Micky & Ansolabehere Stephen & Jr James M. Snyder, 2002. "Are PAC Contributions and Lobbying Linked? New Evidence from the 1995 Lobby Disclosure Act," Business and Politics, De Gruyter, vol. 4(2), pages 1-26, August.
    9. Deniz Igan & Prachi Mishra & Thierry Tressel, 2012. "A Fistful of Dollars: Lobbying and the Financial Crisis," NBER Macroeconomics Annual, University of Chicago Press, vol. 26(1), pages 195-230.
    10. Kalt, Joseph P & Zupan, Mark A, 1990. "The Apparent Ideological Behavior of Legislators: Testing for Principal-Agent Slack in Political Institutions," Journal of Law and Economics, University of Chicago Press, vol. 33(1), pages 103-131, April.
    11. Peltzman, Sam, 1984. "Constituent Interest and Congressional Voting," Journal of Law and Economics, University of Chicago Press, vol. 27(1), pages 181-210, April.
    12. Stephen Nunez, 2004. "Bankruptcy "Reform" in Congress: Creditors, Committees, Ideology, and Floor Voting in the Legislative Process," Journal of Law, Economics, and Organization, Oxford University Press, vol. 20(2), pages 527-557, October.
    13. Piskorski, Tomasz & Seru, Amit & Vig, Vikrant, 2010. "Securitization and distressed loan renegotiation: Evidence from the subprime mortgage crisis," Journal of Financial Economics, Elsevier, vol. 97(3), pages 369-397, September.
    14. Francesco Trebbi & Matilde Bombardini, 2008. "Together or Alone in Lobbying for Trade Policy," 2008 Meeting Papers 458, Society for Economic Dynamics.
    15. Alesina, Alberto & Carliner, Geoffrey (ed.), 1991. "Politics and Economics in the Eighties," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226012810, July.
    16. Thomas Romer & Barry R. Weingast, 1991. "Political Foundations of the Thrift Debacle," NBER Chapters, in: Politics and Economics in the Eighties, pages 175-214, National Bureau of Economic Research, Inc.
    17. Kalt, Joseph P & Zupan, Mark A, 1984. "Capture and Ideology in the Economic Theory of Politics," American Economic Review, American Economic Association, vol. 74(3), pages 279-300, June.
    18. Kau, James B & Rubin, Paul H, 1979. "Self-Interest, Ideology, and Logrolling in Congressional Voting," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 365-384, October.
    19. Peltzman, Sam, 1985. "An Economic Interpretation of the History of Congressional Voting in the Twentieth Century," American Economic Review, American Economic Association, vol. 75(4), pages 656-675, September.
    20. Randall S. Kroszner & Philip E. Strahan, 1999. "What Drives Deregulation? Economics and Politics of the Relaxation of Bank Branching Restrictions," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1437-1467.
    21. Benjamin J. Keys & Tanmoy Mukherjee & Amit Seru & Vikrant Vig, 2010. "Did Securitization Lead to Lax Screening? Evidence from Subprime Loans," The Quarterly Journal of Economics, Oxford University Press, vol. 125(1), pages 307-362.
    22. Charles Calomiris, 2009. "Banking Crises and the Rules of the Game," NBER Working Papers 15403, National Bureau of Economic Research, Inc.
    23. Alberto Alesina & Geoffrey Carliner, 1991. "Politics and Economics in the Eighties," NBER Books, National Bureau of Economic Research, Inc, number ales91-1, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Atif Mian & Amir Sufi & Francesco Trebbi, 2010. "The Political Economy of the US Mortgage Default Crisis," American Economic Review, American Economic Association, vol. 100(5), pages 1967-1998, December.
    2. Haselmann, Rainer & Kick, Thomas & Behn, Markus & Vig, Vikrant, 2015. "The Political Economy of Bank Bailouts," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113082, Verein für Socialpolitik / German Economic Association.
    3. Randall S. Kroszner & Philip E. Strahan, 2001. "Obstacles to Optimal Policy: The Interplay of Politics and Economics in Shaping Bank Supervision and Regulation Reforms," NBER Chapters, in: Prudential Supervision: What Works and What Doesn't, pages 233-272, National Bureau of Economic Research, Inc.
    4. Randall S. Kroszner & Philip E. Strahan, 2000. "Obstacles to Optimal Policy: The Interplay of Politics and Economics in Shaping Bank Supervision and Regulation Reforms," CRSP working papers 512, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    5. Bombardini, Matilde & Trebbi, Francesco, 2011. "Votes or money? Theory and evidence from the US Congress," Journal of Public Economics, Elsevier, vol. 95(7), pages 587-611.
    6. Robert Lowry, 1998. "Religion and the demand for membership in environmental citizen groups," Public Choice, Springer, vol. 94(3), pages 223-240, March.
    7. Morong, Cyril, 1996. "Socio-economic elements in Public Choice research," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 25(5), pages 559-569.
    8. Deniz Igan & Prachi Mishra & Thierry Tressel, 2012. "A Fistful of Dollars: Lobbying and the Financial Crisis," NBER Macroeconomics Annual, University of Chicago Press, vol. 26(1), pages 195-230.
    9. Bohara, Alok K. & Camargo, Alejandro Islas & Grijalva, Therese & Gawande, Kishore, 2005. "Fundamental dimensions of U.S. trade policy," Journal of International Economics, Elsevier, vol. 65(1), pages 93-125, January.
    10. Deniz Igan & Prachi Mishra, 2014. "Wall Street, Capitol Hill, and K Street: Political Influence and Financial Regulation," Journal of Law and Economics, University of Chicago Press, vol. 57(4), pages 1063-1084.
    11. Michael Dorsch, 2013. "Bailout for sale? The vote to save Wall Street," Public Choice, Springer, vol. 155(3), pages 211-228, June.
    12. Andrew Chupp, B., 2011. "Environmental Constituent Interest, Green Electricity Policies, and Legislative Voting," Journal of Environmental Economics and Management, Elsevier, vol. 62(2), pages 254-266, September.
    13. Poole, Keith T. & Rosenthal, Howard, 1996. "Are legislators ideologues or the agents of constituents?," European Economic Review, Elsevier, vol. 40(3-5), pages 707-717, April.
    14. Sungmun Choi, 2017. "Politician’s ideology and campaign contributions from interest groups," Empirical Economics, Springer, vol. 53(4), pages 1733-1746, December.
    15. B. Chupp, 2014. "Political interaction in the senate: estimating a political “spatial” weights matrix and an application to lobbying behavior," Public Choice, Springer, vol. 160(3), pages 521-538, September.
    16. Potters, Jan & Sloof, Randolph, 1996. "Interest groups: A survey of empirical models that try to assess their influence," European Journal of Political Economy, Elsevier, vol. 12(3), pages 403-442, November.
    17. Jannis Bischof & Holger Daske & Christoph J. Sextroh, 2020. "Why Do Politicians Intervene in Accounting Regulation? The Role of Ideology and Special Interests," Journal of Accounting Research, Wiley Blackwell, vol. 58(3), pages 589-642, June.
    18. Dennis, Christopher & Bishin, Benjamin & Nicolaou, Politimy, 2000. "Constituent diversity and congress: the case of NAFTA," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 29(4), pages 349-360, July.
    19. Mark Burkey & Garey Durden, 1998. "The Political Economy of Clean Air Legislation," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 11(2), pages 119-134, March.
    20. Agarwal, Sumit & Amromin, Gene & Ben-David, Itzhak & Evanoff, Douglas D., 2016. "Loan Product Steering in Mortgage Markets," Working Paper Series 2016-18, Ohio State University, Charles A. Dice Center for Research in Financial Economics.

    More about this item

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:16107. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.