Single Family Months for Sale

Before 2000, the NAR only has inventory data on Single Family Homes. Here is the data since in started in June 1982. Clearly, they must have started to collect the data due to the large amount of inventory. Note that most of the inventory was of occupied homes for sale.

New Mortgage Backed Security

From Calculated Risk blog:

New Offering: Bullet Proof Mortgage Backed Securities

This is the first mortgage backed security in the last two years without government support.

There is very interesting documentation of the mortgages behind the securities:

SEC Filing

Check the properties of the mortgages beginning on page 15!

Sunday Irish Lion

Reminder:

Today we have presentations at the Irish Lion starting at 8:00.

Try to get there before 8:00 so that we can order food and drink and get the presentations started earlier rather than later.

We will be upstairs in the small room looking over the street.

See you there!

Sample Presentation

The Panic of 1907

Project Schedule and Topics Chosen

The current schedule and projects chosen so far can be seen here.

update (Friday Afternoon): I am continually update the list as topics are chosen.

(updated 7:00 pm Sun. April 11)

Suggested Topics

Reminder: you need to have a chosen topic by Friday April 9.

Here are some suggested topics:

How the crisis unfolded/impacted other countries:

• Iceland
• United Kingdom
• Eastern Europe: especially Latvia and Estonia
• Spain
• China
• Japan
  

Policy taken in the aftermath of the crisis:

Treasury/Federal Government Programs

• TARP: give us more detail and the subsequent results than we have seen in class so far
• HAMP: the program to prevent foreclosures
• The stimulus bill
• The bailout of the auto industry
• Cash for Clunkers
• First-time Home Purchases
  

US Federal Reserve Actions

• TAF: Term auction facility
• Commercial Paper actions
• TALF: Fed purchases of asset backed securites (non-mortgage)
  
• Mortgage Purchases

The FDIC and all of the bank closings

Actions taken in the UK.

Actions take in China.

The impact of the crisis on International Trade.

Some possible causes that we did not cover in class:

• China and Savings Glut
• Did the Fed keep rates too low for too long in 2002-2005
• Regulation of Derivatives market (there is a good Frontline episode on this)
  

Earlier Crises:

• Great Depression
• Japan 1990s
• Asian Crisis late 1990s
  
• Scandinavian Bank Crisis 1989-1991
• 1907 Banking Panic
• Savings and Loan Crisis
• Latin American Crises (there are a lot, see "This time..."

Proposals being put forth now to change regulation:

• Plans from the UK
• Current proposals from Senator Dodd
• Volcker proposals
  

There are some ideas, of course you can also suggest something yourself.

Final Project Guidelines

For the final project I expect you to write an 8-10 page paper and give an 18 minute in class presentation about a topic relevant to the class. The project should include some empirical results, namely some numbers and hopefully a graph or two about relevant data for your topic.

The timeline for the project is as follows:

• Monday April 5: in class lottery to determine the date for each presentations, see the schedule below. We will also determine whether the first evening gathering will be Monday April 19, Monday April 26 or Tuesday April 27. For details see below.
• Monday April 19: rough draft due
• Monday April 19-April 28: presentations
• Wednesday May 5: final draft due

Presentation schedule:

There will be four presentations per class. We are having two evening classes to cover all of the presentations. The second class will be on Wednesday at 7:30 pm, location tba (maybe Irish Lion). The first class will either be Monday April 19, Monday April 26 or Tuesday April 27. We will determine the time based upon an inclass vote on Monday April 5th.

Lottery:

We will have a lottery on Monday April 5th to determine who presents when. We will do this by everyone drawing a card form a standard 52 card deck. The priority of who chooses first will by number, Ace high, and then by suit: Diamond>Heart>Spade>Club. If you do not make class on Monday April 5, you will be forced to choose from what was left over.

Class Attendance:

Attending class is mandatory during the presentations. I will be taking attendance and this will be 5% of the 20% class attendance grade. In order to avoid a penalty for not attending you will have to clear it with me before Monday April 19th.

Tentative Schedule for Rest of the Semester

Reminder: No Class this week!

Week of April 5:

• Monday April 5: discussing "This Time is Different", lottery to determine presentation dates
  
• Wednesday April 7: discussing "This Time is Different"
• Friday April 9: please have topic picked out by 5pm, for more details see the post on the final project

Week of April 12:

• Monday April 12: discussing "Animal Spirits"
  
• Wednesday April 14: discussing "Animal Spirits

Week of April 19: Presentation Starts

• Monday April 19: rough draft due, presentations #1 to #4.
• Monday April 19, 7:30pm, tentative date for first evening session, presentations #5 to #8.
• Wednesday April 21: presentations #9 to #12.

Week of April 26: Presentations

• Monday April 26: presentations #13 to #16.
• Either Monday April 26, 7:30pm or Tuesday April 27, 7:30pm alternative date for presentations #5 to #8.
• Wednesday April 28: presentations #16 to #20.
• Wednesday April 28, 7:30 pm. presentations #21 to 24.

Finals Week

• Final Project due via pdf email by 5pm on Wednesday May 5.

note: the location for the evening presentation is still to be determined.

Excellent Discussion on Macro

Here is an excellent post by James Hamilton, an economist at California-San Diego.

"Modeling problems in credit markets"

Book Readings

Here is a preliminary breakdown of the required readings for the three books:

(note that it is unrealistic for us to cover all of the topics in all three books, so we will be focusing on sections of each book. That said the material we skip is still worth reading)

Irrational Exuberance: start covering on Monday March 23rd.

Please read:

• Both Prefaces: read all
  
• Chapter One: read all
  
• Chapter Two: read all
  
• Chapter Three: only read pp. 31-36 (up to Cultural...), pp. 50-52 (The Decline of ...) and p. 55 (Summing Up)
• Chapter Four: read all
  
• Chapter Five: skip (although it is an interesting read)
• Chapter Six: read all
• Chapter Seven: skip
• Chapter Eight: only read pp. 147-149 (up to Moral Anchors..) and pp. 152-155 (Overconfidence...)
  
• Chapter Nine: only read pp. 172-173 (The Story so Far)
• Chapter Ten: read all
• Chapter Eleven: skip
• Chapter Twelve: only read pp. 207-210 (up to Ethics..), pp. 224-225 (Monetary Policy...) and pp. 229-230 (Conclusion..)

This Time is Different: start covering March 30

(we will basically be skipping most of the material due to Sovereign Default, and instead focus on Financial Crises)

Please Read:

• Preface, Preamble, Part I (only page 1) and Chapter One: read all
• Chapter 2: skip
• Chapter 3: skip (note this chapter defines most of the data used, you can read this if you do not understand the data cited in later chapters)
• Part II and Part III: chapters 4 through 9: skip all
• Part IV: chapters 10 through 12: read all
• Part V: read chapters 13 through 15, skip chapter 16
• Part VI: read chapter 17.

Animal Spirits start covering on April 5.

• We will try to read it all, we may skip chapters 8, 9 and 13.
  

Study Guide

Study Guide can be found here.

update: study guide updated on Sunday March 7 at 11:45 am. It now reflects all of the material we covered.

State of Macroeconomics

For a brief history of Macroeconomics, read Mankiw:

• "The Macroeconomist as a Scientist and Engineer"

For criticism of the `DSGE' model see Willem Buiter:

• "The unfortunate uselessness of most `state of the art' academic monetary economics"
  

Crisis Slides

Slides on The Crisis

Frontline: Inside the Meltdown

http://www.pbs.org/wgbh/pages/frontline/meltdown/

Bank Runs

Model of Bank Runs, current as of feb 15 1pm.

Brunnermeier

Fed Open Market Operations Annual Reports

Gorton and Bank Runs

Gorton and Haircuts

OTC and Repo Market

For Monday, in addition to the previous material on credit default swaps, also watch the following Marketplace Whiteboards:

• "Over-the-counter, over the top"
• "The 'repo' market"

We will also be covering the tools of Monetary Policy before the crisis hit, so please look over the chapter on banking and Monetary Policy from your intermediate macro textbook (if you still have one). I will also be posting some material about Monetary Policy.

Strategic Default

Here are the links for the two stories on strategic default:

• Planet Money: "To Stay or Walk Away"
• Marketplace: "Strategically defaulting on a home loan"

Remember to watch the Marketplace Whiteboards segments for tomorrow where we will be covering securitization.

Financial Innovation

Tomorrow we will be covering the expansion in subprime lending.

On Wednesday we will be covering financial innovation and the creation of such financial products as credit default swaps. To learn about these watch the following three videos from Marketplace's Whiteboard (another great resource connected to public radio).

• "How credit cards became asset-backed bonds," about credit cards, but covers the basic idea of securitization. Also check out the wikipedia entry on Mortgage backed securities (MBS), these pictures are useful. pic #1 pic #2
• "Crisis explainer: Uncorking CDOs," covers the general idea about creating new securities from bonds
• "Untangling credit default swaps" our first exposure to the notorious `credit default swap'

Also, please listen to another episode from "This American Life," here they cover the credit default swap, talking to people involved in the market.

• "Another Frightening Show About the Economy" for class listen to acts two and three that start at 20:00. However, the first twenty minutes are interesting since they capture the mood of the economy in October 2008 when the markets really started to collapse.
  

Mortgages, Government Regulation, and Subprime Lending

Today we talked about mortgages. A good reference that covers the various types of mortgages is found in "Mortgage Innovation, Mortgage Choice, and Housing Decisions" by Chamber, Garriga and Schlagenhauf from the St. Louis Fed. Read the first half of the paper, the second part contains a model that is beyond the scope of this course.

For the next class meetings please read over two more articles from the St. Louis Fed:

• An article about Federal Government involvement in the mortgage market: "Federal Credit and Insurance Programs: Housing" by John M. Quigley, (this was published in July 2006).
  
• An article about growth in the subprime lending market: "The Evolution of the Subprime Mortgage Market" by Chomsisengphet and Pennington-Cross, (published January 2006).

After you have read about the growth in subprime lending, please listen to this classic piece from "This American Life" entitled "The Giant Pool of Money." That episode launched the Planet Money blog and thrice weekly podcast--a really great source for explaining economics. Today they (along with Russel Roberts from Cafe Hayek) debut an entertaining `rap' video between Keynes and F.A. Hayek about their disagreements in Macro.

Book to Order

Please order the following three books. I have linked them to Amazon, but feel free to get them from any source. We will be starting on Irrational Exuberance in a couple of weeks, so do not delay in ordering. (Note that Amazon is currently offering a discount on the joint order of `Animal Spirits' and `This Time is Different'--however I believe that is only for the hardcover for `Animal Sprits,' which is now out on the cheaper paperback. )

• `Irrational Exuberance' by Robert Shiller.
• `Animal Spirits' by George Akerlof and Robert Shiller.
• `This Time is Different' by Carmen Rheinhart and Kenneth Rogoff.
  

Housing Bubble? Housing Market Readings

Here are the readings covering the housing market leading up to the bursting of the bubble. Please have these read for class on Wednesday January 20th. I have provided direct links to the readings on the sidebar. For details on the readings, read on.

Some readings from the popular press:

• Business Week, July 19, 2004: "Is a Bubble About to Burst?"
• Jim Jubak, Columnist at MSN Money, June 10, 2005; "Why there is no housing bubble"
• Article about Ben Bernanke in Washington Post, Oct. 27, 2005; "Bernanke: There's no Housing Bubble to go Bust"

In reading these, ask yourself what were the main issues the popular press was pointing to to determine whether there was a bubble in the housing market.

Next some readings from economic researchers. Note that a lot of researchers discounted the likelihood that there was a housing bubble. Therefore, the papers and researchers listed here should not be singled out as having made a terrible prediction. Rather their work here represents what a lot of very smart people were thinking and saying at the time. The papers should be read as a way to understand the relevant issues and to better understand how people were thinking. Further, note how most researchers made conditional predictions for the economy in the case where there was a bubble--most of these conditional predictions came to fruition!

First, two short articles from John Krainer, an economist at the Federal Reserve bank of San Francisco. Note that both of these articles were written early in the housing bubble, before 2004.

• Economic Letter, May 3, 2002: "House Price Dynamics and the Business Cycle"
• Economic Letter, March 7, 2003: "House Price Bubbles"

What does Krainer argue about the likelihood of a fall in Nominal house prices?

Next two papers with differing views about whether there was a housing bubble. First a paper by Jonathan McCarthy and Richard W. Peach, two economists at the Federal Reserve Bank of New York. They found that house prices were justified by the fundamentals.

• FRBNY Economic Policy Review, December 2004 "Are Home Prices the Next `Bubble'?"
  

The NY Fed economists were just part of a large crowd who justified high house prices with fundamentals, for instance see "Assesing High House Prices: Bubbles, Fundamentals and Misperceptions" by Himmelberg, Mayer and Sinai.

The next paper is by Karl Case and Robert Shiller. In this paper they examine whether there is a bubble. The innovation in their work is a survey about buyer's expectations--concentrate your reading on this part of the paper.

• Brookings; "Is There a Bubble in the Housing Market" (this version of the paper comes from JSTOR, requiring you to be over an IU connection. An earlier unrestricted version can be found at Karl Case's webpage here)
  

Slides for Today: Could We See a Bubble at the end of 2004?

Here are slides for today's lecture.