Re: Was cheap credit a substitute for real income growth?

Question: Was cheap credit a substitute for real income growth?

Thomas Cooley:  Well, there's no doubt that that's an issue.  There was a lot of cheap credit, and in the same period real incomes did not increase as much as we would have expected or liked in that economic expansion.  But cheap credit is not a bad thing, you know, In fact, it's a good thing if it permits more people to–– gives them access to the prospect of owning their own home.  So home ownership did expand in that period, and that's not a bad thing, as long as people take on debts that they can afford.  The problem was that they were often put into mortgages that they couldn't afford, that had low teaser rates that were going to reset and that was more the problem, the fault of the mortgage lenders and the borrowers to not really understand what they were getting into.

Thomas Cooley:  Well, I think borrowers could have gotten better advice about what they could have afforded and they could have had a little bit better perspective about what happens to housing prices over time. 

Recorded: 3/21/08

The coincidence is hard to overlook, says Cooley.

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