Politics of subprime datapoint of the day
Atif Mian, Amir Sufi, and Francesco Trebbi report, in a new paper:
We begin with an examination of the pattern of campaign contributions toward representatives from districts with a high fraction of subprime borrowers. From 1994 to 2000, mortgage industry campaign contributions toward these representatives are relative steady. However, beginning in the 107th Congress (2001-2002), there is a sharp relative rise in mortgage industry campaign contributions toward representatives from high subprime share districts. The relative increase accelerates through 2006. The magnitude is economically significant: a one standard deviation increase in the fraction of subprime borrowers in a given district leads to an 80 percentage point increase in the growth of mortgage campaign contributions from 2002 to 2006. In contrast, we see no effect for non-mortgage financial industry campaign contributions.
Of course there’s a pretty chart to go with:
The authors conclude, based on this and other evidence, that both subprime lenders and subprime borrowers were responsible for successfully pressuring politicians of both parties to deregulate the mortgage industry.
This isn’t regulatory capture, so much as it is regulatory emasculation via Congress. And there’s really nothing that can be done, in terms of building a new regulatory architecture, to stop the same thing from happening again in future — especially with the rise of tea-party rhetoric. All we can hope for is that memories of the financial crisis will be long enough to prevent Congress from embarking on another fight against regulatory red tape and artificial restraints. I’m not hopeful.