TY  - JOUR
AU  - Mulligan,Casey B.
TI  - A Depressing Scenario: Mortgage Debt Becomes Unemployment Insurance
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14514
PY  - 2008
Y2  - November 2008
UR  - http://www.nber.org/papers/w14514
L1  - http://www.nber.org/papers/w14514.pdf
N1  - Author contact info:
Casey B. Mulligan
University of Chicago
Department of Economics
1126 East 59th Street
Chicago, IL  60637
Tel: 773/702-9017
Fax: 773/702-8490
E-Mail: c-mulligan@uchicago.edu
AB  - When asset values fall, the owners of collateralized loans are not in an enviable position.  Nonetheless, they possess a kind of monopoly power over their borrowers that they do not possess when borrowers are solvent.  Lenders maximize profits by price discriminating, but create deadweight costs in the process.  From the perspective of the aggregate labor market, it is as if lenders were levying their own labor income tax, on top of the taxes already levied by public treasuries.  Governments have an incentive to regulate this price discrimination, repudiate part of the private debts, cut their own tax rates, or acquire the debt themselves.  These conditions may describe both the 1930s and economic events today.
ER  -