[ExI] "This American Life" on global credit crisis

gts gts_2000 at yahoo.com
Tue Oct 14 14:13:20 UTC 2008

> Anatomy of a Train Wreck: Causes of the Mortgage
> Meltdown Stan J. Liebowitz
> The Independent Institute, October 3, 2008
> This report concludes that... [among other things]...
> The recent rise in foreclosures is not related empirically 
> to the distinction between subprime and prime loans...

That claim seems counter-intuitive and contrary to everything I've read, so I downloaded the paper to get an idea what the author really means.

>From the paper:

"There is no evidence to support a claim that
somehow the subprime market had this unprecedented
increase in foreclosures and that later the
prime loans accidentally caught the contagion. Both
markets were hit at the same time, and the force was
at least as strong in the prime market. But this is not
to say that foreclosures were not higher in the subprime
market. They were. Historically, subprime default
rates have been ten times as large as the default
rates for prime loans, and that has largely continued
through the mortgage meltdown (just compare the
numbers on the vertical axes of the figures 4 and 5)."

That makes more sense. Subprime mortgages default at about 10X the rate of prime mortgages, and they continue to default at that high rate.

Add to this the phenomenal growth in the markets for subprime and alt-a mortgages during this decade, and there you have a recipe for disaster.


More information about the extropy-chat mailing list