new paper by IMF economists Deniz Igan, Prachi Mishra, and Thierry Tressel shows that financial firms spared little expense in their lobbying efforts during the lending boom. Between 1998 and 2006, firms in the financial, insurance, and real estate (FIRE) industries increased lobbying by about 25 percent while the average firm increased lobbying by less than 10 percent:

For 2006, the so-called FIRE industries spent $479,500 per firm compared with $300,273 per firm in defense lobbying or $200,187 per firm in construction lobbying.

Within the FIRE sector, firms that lobbied more also tended to:

  • have more lax lending standards as measured by loan-to-income ratios
  • securitize more
  • have a larger presence in geographic areas suffering from greater delinquincies
  • lose more money during the financial crisis

All of which presents more evidence that the housing boom was rife with skewed economic incentives. As the author's write of lobbying:

"financial intermediaries lobby to obtain private benefits, making loans under less stringent terms not because they have better capacity to evaluate risks associated with the loans, but because they expect short term gains from these loans during the boom phase, and to be bailed out when losses amount during a financial crisis."

--Zubin Jelveh