Tuesday, May 7, 2013

James Buchanan laughs best

Or would, if the co-founder of Public Choice Economics were still alive, at this from Stuart A. Gabriel, Matthew E. Kahn and Ryan K Vaughn.
... our findings suggest a consistent pattern of Congressional Representative political geography in subprime lending. [The now defunct sub-prime lender] New Century may have viewed direction of campaign contributions to particular Representatives as well as enhancement of subprime-credit access in those or other Congressional Districts as consistent with profit maximisation, to the extent it helped to buy Congressional support for widespread proliferation of this controversial lending instrument among less qualified borrowers.
At the same time, local direction of mortgage capital may have served to elevate Representative political capital among constituents, given provision of mortgage finance to constituent households previously excluded from home ownership attainment. As boom turned to bust, Congressional proponents of the mortgage-credit boom likely rushed to support legislation aimed at foreclosure relief for those same constituents. Political factors, including direction of campaign contributions and Representative-specific allocation of mortgage finance, provide important new insights as regards the political geography of subprime lending.
 Findings suggest that Congressional leaders as well as recipients of New Century campaign contributions may have benefited from gains to trade in the direction, pricing, and sizing of subprime mortgage loans.
[Thanks to N.C. State's Craig Newmark]

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