Afternoon Must-Read: Nick Bunker: Did Credit Replace Wage Growth in the Mid-2000s?
Let me highlight the last paragraph of Nick Bunker’s piece over at our Value Added, just for those of you who don’t click through either from the home page or from the title list at right:
…were taking out much larger loans than before or more mortgages? According to Adelino, Severino, and Schoar… more so the latter… new borrowers entering the market…. Adelino, Severino and Schoar’s paper would seem to indicate that what caused the run up in mortgage debt wasn’t due to a change in ‘lending technology’ such as securitization or looser government policies. Rather, the debt was built by the same kind of bubble dynamics that leads to investors betting that an asset will never lose value. Which story is true is still up for debate, but it could just be that this time wasn’t no different after all…