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The Virtue Of Home Ownership And The Vice Of Poorly Secured Lending: The Great Financial Crisis Of 2008 As An Unintended Consequence Of Warm-Hearted And Bone-Headed Ideas, Mark S. Klock
Mark S Klock
This article utilizes a simple economic model of asymmetric information to model a pooling equilibrium in the housing market. There are two types of households in the model—disciplined and undisciplined. Disciplined households are able to distinguish themselves by saving a significant portion of their income for a down payment on a home leading to a stable equilibrium. A change in government policy which requires a rate of home ownership greater than the proportion of disciplined households causes the equilibrium to collapse. I argue that changes in U.S. housing policy driven by federal legislation had exactly this effect on the housing …