Monday, January 21, 2008

Bad debts are “unknown unknowns”

Finding default: What isn't known about bad debts

What happened in the subprime market was an “unknown unknown”. There were several layers of middlemen between investors and house-buyers, most of whom had an incentive to overstate either house prices or a borrower's ability to repay. Worries about other parts of the debt market remain. In recent years struggling consumers have been able to consolidate their credit-card debts into their mortgage loans; that option is no longer open. Will that affect default rates? And car companies have relied on cheap financing rates to maintain sales. Has that led to a decline in lending standards?

Posted by drewster @ 01:32 AM (605 views)
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One thought on “Bad debts are “unknown unknowns”

  • This severity of the “unknown” is for my money what would be the difference between a correction in prices and a full-blown housing crash.

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