Grasping Reality with Both Hands: Economist Brad DeLong's Fair, Balanced, and ... - The Diigo Meta page

• 14 Apr 08
  

  Joel Coppin

  Okuns gap

  banking economics

• 30 Mar 08
  

  tony curzon price

  Brad de Long give a high-level view of what the finance sector is going through that makes real sense of it all. And he points to what the real worry might be. It is there, and the Central Banks have to be alert to it.

  subprime

  • What's really going on? What's going on is that perhaps $6T of mortgages with a duration of a decade that had been priced at a 1% per year chance of default (with a 1/3 value haircut in the event of default) are now being priced at a 4% per year chance of default. That's a loss of $600B in market value--and if your share of that $600B is greater than your capital, or is thought to be greater than your capital and so impedes your operations, you are gone.

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