Working Paper: NBER ID: w18904
Authors: Inghaw Cheng; Sahil Raina; Wei Xiong
Abstract: We analyze whether mid-level managers in securitized finance were aware of the housing bubble and a looming crisis in 2004-2006 using their personal home transaction data. To the extent that the practice of securitization may have led to lax screening of subprime borrowers, we find that the average person in our sample did not expect it to lead to problems in the wider housing market. Certain groups of securitization agents were particularly aggressive in increasing their exposure to housing during this period, suggesting the need to expand the incentives-based view of the crisis to incorporate a role for beliefs.
Keywords: Housing Bubble; Securitization; Financial Crisis
JEL Codes: G01
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Securitization agents did not exhibit awareness of the housing bubble (G24) | Increased housing exposure (R21) |
| Increased housing exposure (R21) | Engaging in purchasing second homes (G51) |
| Increased housing exposure (R21) | Upgrading to more expensive properties (R21) |
| Securitization agents underperformed compared to equity analysts and lawyers (G24) | Suggesting behavior did not align with awareness of housing crisis (R21) |
| Lower divestiture intensities and higher home purchase rates (R21) | Did not anticipate the housing bubble and crash (R31) |