Re: Was cheap credit a substitute for real income growth?
Thomas F. Cooley is the Richard R. West Dean and the Paganelli-Bull Professor of Economics at New York University Stern School of Business, as well as a Professor of Economics in the NYU Faculty of Arts and Science. He was appointed Dean of NYU Stern in 2002.
The former President of the Society for Economic Dynamics and a Fellow of the Econometric Society, Dean Cooley has received numerous awards for his teaching and is recognized as a national leader in both macroeconomic theory and business education. He is a widely published scholar in the areas of macroeconomic theory, monetary theory and policy and the financial behavior of firms.
Before joining NYU Stern, Dean Cooley was a Professor of Economics at the University of Rochester, University of Pennsylvania, and UC Santa Barbara. Prior to his academic career, Dean Cooley was a systems engineer for IBM Corporation. Dean Cooley received his BS from Rensselaer Polytechnic Institute, and his MA and PhD from the University of Pennsylvania. He also holds a doctorem honoris causa from the Stockholm School of Economics.
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.
The coincidence is hard to overlook, says Cooley.
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