Working Paper: NBER ID: w23740
Authors: Stefania Albanesi; Giacomo De Giorgi; Jaromir Nosal
Abstract: A broadly accepted view contends that the 2007-09 financial crisis in the U.S. was caused by an expansion in the supply of credit to subprime borrowers during the 2001- 2006 credit boom, leading to the spike in defaults and foreclosures that sparked the crisis. We use a large administrative panel of credit file data to examine the evolution of household debt and defaults between 1999 and 2013. Our findings suggest an alternative narrative that challenges the large role of subprime credit in the crisis. We show that credit growth between 2001 and 2007 was concentrated in the prime segment, and debt to high risk borrowers was virtually constant for all debt categories during this period. The rise in mortgage defaults during the crisis was concentrated in the middle of the credit score distribution, and mostly attributable to real estate investors. We argue that previous analyses confounded life cycle debt demand of borrowers who were young at the start of the boom with an expansion in credit supply over that period.
Keywords: No keywords provided
JEL Codes: D14; E01; E21; E40; G01; G1; G18; G20; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| credit growth during 2001-2007 (F65) | defaults among middle-credit score individuals (G51) |
| defaults among middle-credit score individuals (G51) | behavior of real estate investors (R21) |
| behavior of real estate investors (R21) | increased risk during downturns (F44) |
| life cycle demand for credit among younger borrowers (G51) | misinterpretation of data regarding credit supply expansion (E51) |
| income growth (O49) | debt growth during the credit boom (F65) |
| mortgage defaults during the crisis (G21) | borrowers in the middle and upper credit score brackets (G51) |