Banks are often ridiculed for making home loans in the mid 2000s, when supposedly they should have known that housing prices would fall.
But banks were in a “heads: I keep all the winnings, and tails: I share the losses with taxpayers” situation, and it was rational to downweight the probability that housing prices would fall. This article quantifies some of the taxpayer help mortgage market participants expected in the contingency that housing prices fell.
Today that was updated by the TARP’s Special Inspector General, who increased the subsidy estimate by $500 billion!.
Disclaimer: This page contains affiliate links. If you choose to make a purchase after clicking a link, we may receive a commission at no additional cost to you. Thank you for your support!