The Political Economy of the U.S. Mortgage Default Crisis
So, do you wonder what influenced politicians voting behavior on the bailout? Well here you go.
We examine the determinants of congressional voting behavior on two of the most significant pieces of federal legislation in U.S. economic history: the American Housing Rescue and Foreclosure Prevention Act of 2008 and the Emergency Economic Stabilization Act of 2008. We find evidence that constituent interests and special interests influence voting patterns during the crisis. Representatives from districts experiencing an increase in mortgage default rates are significantly more likely to vote in favor of the AHRFPA. They are precise in responding only to mortgage related constituent defaults, and are significantly more sensitive to defaults of their own-party constituents. Increased campaign contributions from the financial services industry is associated with a higher likelihood of voting in favor of the EESA, a bill which transfers wealth from tax payers to the financial services industry. We also examine the trade-off between politician ideology and constituent and special interests, and find that conservative politicians are less responsive to constituent and special interest pressure. This latter finding suggests that politicians, through ideology, can commit against intervention even during severe crises.
Interesting…ideology as a commitment strategy. When I first got into political economy, public choice economics, and so forth one of the early papers I read looked at the issue of voter turnout. The author modeled voting as a game where candidates would select a position in “policy space” that would maximize the number of votes. The result was that politicians convreged and occupied the same point in policy space and turn out was zero. The author noted that he did not attempt to model political party affiliation and that would be the next logical step in looking at the issue. Party affiliation and ideology as a commitment mechanism is an interesting take on party affiliation.