Yet another post on the credit crisis

In Money on February 23, 2009 at 00:52

billmon has written a not-so-simple take on what lead to the credit crisis.

I do not understand it all yet, but a longer list of assumptions made on the investment vehicles:

  1. Housing prices rarely go down, at least nationally.
  2. Default losses on large mortgage pools are not only low but relatively stable.
  3. People don’t walk away from their homes, even when they’re under water.
  4. Regional housing markets are largely uncorrelated.

This was one of the hard hitting lines from the article:

Thanks to the embedded leverage these “legacy” assets contain, a 20% (housing) price decline has resulted in 80% or 90% or even 100% losses on many of them.

Should read the article better when I get the time …


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