Bernanke’s legacy will be “an absolute disaster”: OPINION

New York /
Jan.January 07, 2014 06:00 PM

New research suggests that “predatory lending” — the buzzword villain of the financial crisis — may have only played a small part in the subprime lending crisis.

An upcoming study in the Journal of Financial Economics found that “predatory lending was responsible for only about a quarter of the default rate, suggesting it wasn’t the most important driver of the subprime crisis,” said co-author Itzhak Ben-David of Ohio State’s Fisher College of Business (via Bloomberg’s Matt Levine).

Then there’s this new San Francisco Fed economic letter, which found that borrowers’ “tendency to choose adjustable-rate mortgages is consistent with mortgage decisions based on economic considerations, rather than just lack of financial sophistication.”

As Levine points out, these papers offer a different story of the financial crisis. It’s a tale much more sympathetic to the lenders (less “predator,” more “presenting borrowers with the opportunity to take perfectly rational risks”).

History will have to place the blame.


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