If you read the Mercatus Center website, you'll be greeted with an interesting claim: "For over 25 years, the Mercatus Center at George Mason University has been the world’s premier university source for market-oriented ideas—bridging the gap between academic ideas and real world problems." The Mercatus Center has even formed a Financial Markets Working Group. "The Financial Markets Working Group is a collection of seventeen university-based scholars with expertise across a wide range of economic issues relevant to the recent economic crisis."
Oh really? Here are what three leading Mercatus Center "scholars" wrote about subprime lending:
There has been much criticism lately about so-called 'exotic mortgages' that are creating a 'housing bubble'.... Although often lumped together, the two are distinct. And I'm not sure I see what the problem is here. I want to focus on the supposed harm of exotic mortgages, especially interest-only mortgages (which are said to create the housing bubble by allowing people to borrow "too much" and forcing up home prices).
The subprime mortgage market is relatively new, and some lenders and borrowers misjudged the risk of loans and originated overly-risky loans-but most borrowers are now better off because of their subprime loans
[T]he growth in subprime lending is not creating overwhelming debt burdens for low-income households. -- Todd Zywicki, Mercatus Center "scholar," and George Mason University economist.
More from another "scholar""
"[S]ubprime mortgage lending is a natural and positive outgrowth of financial innovation. Although some problems have occured they are being self-corrected and do not threaten the financial system." -- Alex Tabarrok (approvingly quoting Ben Bernanke's 2007 comments), George Mason University economist, and Mercatus Center "scholar."
Alex Tabarrok had much more to say about subprime lending. In a long rant against "credit snobs" - those of us who thought loaning money to people who couldn't afford to repay their loans - Tabarrok writes:
The fact that there are defaults is partly a learning process in response to financial innovation, and thus evolution, but also partly a simple matter of risk. Defaults are to be expected. I see no reason to expect contagion. All lending statistics must now be marked to the global financial market which means that diversification is now more extensive than ever before and thus net risk is lower.
Mercatus Center CEO and George Mason University economist, Tyler Cowen, also had much to say about subprime lending. I have collected his commentary here. Among other "facts" about subprime lending, he presented this gemstone:
Even with about a tenth of all subprime mortgages now in foreclosure, only a small share of all American families -- about 0.3 percent -- own a home in foreclosure...Here is the link, from Mark Thoma. This is one big reason why I'm not yet convinced by the economic pessimists. The article also notes how many estimates of the S&L crisis of the 1980s were exaggerated, and suggests the same tendency may be happening today.
How can the same economists who claimed that subprime lending was great for poor people, and no threat to the broader economy, claim to have expertise about the financial crisis? These are the guys who enabled the economic crisis!
The Mercatus Center has no credibility. They do, however, produce great work - if you're a bank or large corporation looking for a "research paper." In our next post about Mercatus, we'll see what Mercatus' tax records reveal. Who is funding their "research"? And what - or, rather, whom - is Mercatus spending a substantial amount of money on?