Jump to content
House Price Crash Forum
Sign in to follow this  
Willy Weasel

Report From Jackson Hole

Recommended Posts

http://www.econbrowser.com/archives/2007/0...t_from_jac.html

From the article:

Green and Wacther then asked whether the mortgage finance revolution would now be followed by a reign of terror, delving into the origins of current problems with subprime mortgages. The authors write:

The behavior of investors with respect to subprime mortgages is puzzling, to say the least. Mortgage originators had powerful incentives to originate loans, regardless of quality: every mortgage that was successfully originated and sold to an investor produced a fee for the originator. While companies that originated the loan, such as New Century, could give representations and warrantees to investors that loans met some minimum standard, they were not well enough capitalized to make good on any promises in the event of large-scale default. It is difficult to understand why this was not clear to investors ex ante.

The second puzzle is that investors and rating agencies appeared to believe that diversification per se could cause systemic risk to disappear. It is of course the case that as a security becomes more diversified, unsystematic risk will get smaller, but mortgages with ten percent default probabilities will continue to carry such probabilities, regardless of the securities in which they are packaged....

The third puzzle is investors' seeming lack of understanding about housing market risk.

Share this post


Link to post
Share on other sites
Guest vicmac64
http://www.econbrowser.com/archives/2007/0...t_from_jac.html

From the article:

Green and Wacther then asked whether the mortgage finance revolution would now be followed by a reign of terror, delving into the origins of current problems with subprime mortgages. The authors write:

The behavior of investors with respect to subprime mortgages is puzzling, to say the least. Mortgage originators had powerful incentives to originate loans, regardless of quality: every mortgage that was successfully originated and sold to an investor produced a fee for the originator. While companies that originated the loan, such as New Century, could give representations and warrantees to investors that loans met some minimum standard, they were not well enough capitalized to make good on any promises in the event of large-scale default. It is difficult to understand why this was not clear to investors ex ante.

The second puzzle is that investors and rating agencies appeared to believe that diversification per se could cause systemic risk to disappear. It is of course the case that as a security becomes more diversified, unsystematic risk will get smaller, but mortgages with ten percent default probabilities will continue to carry such probabilities, regardless of the securities in which they are packaged....

The third puzzle is investors' seeming lack of understanding about housing market risk.

AHHH so the markets are a puzzle - mmmmmmm.

Yip point taken on board.... gold is not a puzzle it is real.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 355 The Prime Minister stated that there were three Brexit options available to the UK:

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.