TY  - JOUR
AU  - Foote,Christopher L.
AU  - Gerardi,Kristopher S.
AU  - Willen,Paul S.
TI  - Why Did So Many People Make So Many Ex Post Bad Decisions?  The Causes of the Foreclosure Crisis
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 18082
PY  - 2012
Y2  - May 2012
UR  - http://www.nber.org/papers/w18082
L1  - http://www.nber.org/papers/w18082.pdf
N1  - Author contact info:
Christopher Foote
Federal Reserve Bank of Boston
Research Department, T-8
600 Atlantic Avenue
Boston, MA 02210
Tel: 617-973-3077
E-Mail: chris.foote@bos.frb.org

Kristopher Gerardi
Federal Reserve Bank of Atlanta
1000 Peachtree St. NE
Atlanta, GA 30309
E-Mail: kristopher.gerardi@atl.frb.org

Paul S. Willen
Federal Reserve Bank of Boston
600 Atlantic Avenue
Boston, MA  02210-2204
Tel: 617/973-3149
Fax: 617/973-2123
E-Mail: willen968@gmail.com
AB  - We present 12 facts about the mortgage crisis. We argue that the facts refute the popular story that the crisis resulted from finance industry insiders deceiving uninformed mortgage borrowers and investors. Instead, we argue that borrowers and investors made decisions that were rational and logical given their ex post overly optimistic beliefs about house prices. We then show that neither institutional features of the mortgage market nor financial innovations are any more likely to explain those distorted beliefs than they are to explain the Dutch tulip bubble 400 years ago. Economists should acknowledge the limits of our understanding of asset price bubbles and design policies accordingly.
ER  -