NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Evaluating Policies to Prevent another Crisis: An Economist's View

Paul S. Willen

NBER Working Paper No. 20100
Issued in May 2014
NBER Program(s):Economic Fluctuations and Growth

I consider four policies created to address the financial crisis: (1) the ability-to-repay requirement in mortgage underwriting; (2) reform of rating agency compensation, (3) risk retention in securitization, and (4) mandatory loan renegotiation. I show that according to standard models, policies (1)-(3) do not address the standard asymmetric information problems that afflict financial markets. Policy (4) could reduce the deadweight losses associated with asymmetric information but requires that policy makers allocate gains and losses.

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Document Object Identifier (DOI): 10.3386/w20100

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