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Greek Debt And American Debt: Graduation Speech At The University Of Athens Economics And Business School, John Geanakoplos
Greek Debt And American Debt: Graduation Speech At The University Of Athens Economics And Business School, John Geanakoplos
Cowles Foundation Discussion Papers
This is the graduation speech I gave on receiving an honorary doctorate at the University of Athens Economics and Business School. I talk about my Greek family, about how I got interested in economics, and then how in the 1990s I came to think about default, collateral, and leverage as the central features of the financial/macro economy, despite their complete absence (even now) from any textbooks. Finally I suggest that the Greek debt problem, and on a bigger scale, the American debt problem, can only be cured when lenders are prodded to forgive. That would be better for the borrowers …
2. Screening Cost, Credit Risk, And The Optimal Structure Of Mortgage Lending—Origin Of The Subprime Mortgage Crisis, Pingkang Yu
2. Screening Cost, Credit Risk, And The Optimal Structure Of Mortgage Lending—Origin Of The Subprime Mortgage Crisis, Pingkang Yu
Pingkang Yu
This paper attempts to answer a direct question—who should get mortgage credit and how should that credit be supplied? This question is at the heart of the recent subprime crisis and the efforts to reform mortgage lending through new regulations. This paper develops a credit market model with borrower’s self-selection and lender’s costly screening. Borrowers in the model differ in both screening cost and credit risk. In particular, the model includes fraudulent borrowers and low-risk-high-documentation-cost borrowers. The paper finds that separating equilibrium, where specialized lender serves the targeted type of borrower, is the only feasible market structure in the long …
Breaching The Mortgage Contract: The Behavioral Economics Of Strategic Default, Tess Wilkinson-Ryan
Breaching The Mortgage Contract: The Behavioral Economics Of Strategic Default, Tess Wilkinson-Ryan
All Faculty Scholarship
Underwater homeowners face a quandary: Should they make their monthly payments as promised or walk away and save money? Traditional economic analysis predicts that homeowners will strategically default (voluntarily enter foreclosure) when it is cheaper to do so than to keep paying down the mortgage debt. But this prediction ignores the moral calculus of default, which is arguably much less straightforward. On the one hand, most people have moral qualms about breaching their contracts, even when the financial incentives are clear. On the other hand, the nature of the lender-borrower relationship is changing and mortgage lenders are increasingly perceived as …