Sergi Jiménez-Martín, Hugo Benítez-Silva, Selcuk Eren, Frank Heiland, 30 June 2009

How did we get a housing bubble? This column describes how well households predict the market values of their homes. Most homeowners overestimate the value of their properties by 5% to 10%, primarily due to the large expected capital gains implicit in the self-reported home values. Overly optimistic expectations about the evolution of house prices may have planted the seed of the current mortgage crisis in the US.

Riccardo Cesari, 18 October 2008

This column argues that current bailout plans do not address the roots of the crisis. It advocates a significant re-regulation of financial markets and assistance to households unable to manage their real estate debt.

Daniel Gros, 27 September 2008

How much are the toxic assets worth? A bit of logic and a straightforward application of the Black-Scholes formula suggests that if current expectations of house price declines are right, securities built on subprime mortgages might be close to worthless. The key is that US mortgages are ‘no recourse’ loans, i.e. debtors can walk away from the mortgage without being held personally liable, a feature that gives homeowners a virtual put option.

Daniel Cohen, 03 June 2008

What easy money brought forth in the new century, tight credit will take away in the years to come. Here one of France’s leading economists explains the origins of the subprime crisis and why it is likely to continue to unfold.

Giovanni Dell'Ariccia, Deniz Igan, Luc Laeven, 04 February 2008

Over the last decade, the market for mortgage-backed securities has expanded dramatically, evolving from a small niche segment to a major portion of the overall U.S. mortgage market. The authors of CEPR DP6683 study the relationship between this recent boom and current delinquencies in the subprime mortgage market. Specifically, they analyze the extent to which this relationship can be explained by a decline in credit standards and excessive risk taking by lenders that is unrelated to improvements in underlying economic fundamentals.

Charles Wyplosz, 16 August 2007

A basic principle of high uncertainty is to be careful. This principle also applies to analyses of the situation, even if decisiveness in the face of turmoil is at a premium. Better wait than make things worse. Here a few observations to sort through the emerging debate.



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