{"id":18930,"date":"2025-12-17T14:59:28","date_gmt":"2025-12-17T20:59:28","guid":{"rendered":"https:\/\/uwm.edu\/business\/?p=18930"},"modified":"2025-12-17T14:59:30","modified_gmt":"2025-12-17T20:59:30","slug":"bradley-lecture-nobel-laureate-doug-diamond-explores-how-mortgage-policy-shapes-financial-crises","status":"publish","type":"post","link":"https:\/\/uwm.edu\/business\/bradley-lecture-nobel-laureate-doug-diamond-explores-how-mortgage-policy-shapes-financial-crises\/","title":{"rendered":"Bradley Lecture: Nobel Laureate Doug Diamond Explores How Mortgage Policy Shapes Financial Crises"},"content":{"rendered":"\n

Mortgage decisions shape far more than individual home purchases. They influence how banks manage risk, how interest rate changes affect the economy, and how financial stress can spread during periods of uncertainty. In a Bradley Distinguished Lecture, Nobel Prize winning economist Doug Diamond<\/strong> examined how decades of mortgage finance and monetary policy decisions have helped create both stability and vulnerability in the U.S. financial system.<\/p>\n\n\n\n

Diamond, the Merton H. Miller Distinguished Service Professor of Finance at the University of Chicago Booth School of Business, focused on the long history of government involvement in mortgage markets and how those choices affect homeowners, lenders and financial stability.<\/p>\n\n\n\n

\u201cA lot of financial crises work through housing more than people expect,\u201d Diamond said. \u201cIt is surprising because housing policy is usually not at the top of the list of things that worry people.\u201d<\/p>\n\n\n\n

At the center of his talk was the 30-year fixed rate mortgage. Diamond described it as attractive and stable for borrowers, but risky for lenders and the broader system when interest rates rise. \u201cThe 30-year fixed rate mortgage has a good side and it has an evil side,\u201d he said. \u201cIt is great for borrowers, but it is not so great for lenders if interest rates move around.\u201d<\/p>\n\n\n\n

Diamond traced how government efforts to expand access to homeownership, starting during the Great Depression, led to repeated cycles of reform and crisis. He compared subsidized mortgages to government backed flood insurance. \u201cIf you give people cheap insurance, you encourage them to take more risk,\u201d Diamond said.<\/p>\n\n\n\n

He also examined how modern monetary policy has amplified these effects. During periods of very low interest rates, the Federal Reserve bought large amounts of long term bonds and mortgage backed securities. \u201cQuantitative easing was like free insurance against interest rate increases,\u201d Diamond said. \u201cThat insurance looked cheap at the time, but it came with long term costs.\u201d<\/p>\n\n\n\n

Those costs include today\u2019s frozen housing market, where many homeowners are unwilling to sell because they are locked into historically low mortgage rates. \u201cPeople with 30-year fixed rate mortgages turn down better jobs and stay put,\u201d Diamond noted, explaining that housing policy now affects labor mobility as well. Diamond urged policymakers to think more carefully about how housing finance, banking regulation and monetary policy interact. \u201cYou cannot think about monetary policy, finance, and stability separately,\u201d he said. \u201cThey are tightly connected, and the effects last much longer than we expect.\u201d<\/p>\n\n\n\n

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