These improvements have led to rapid growth in

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Unformatted text preview: ite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in subprime mortgage lending ...” (Greenspan, 2005) An example of Minsky’s notion of validation. Fixed Income VII: R. J. Hawkins Econ 136: Financial Economics 22/ 35 The non-Agency MBS Market: July 10, 2007 The greatest reassessment of the marginal efficiency of capital in recent history begins. Moody’s downgraded without warning a large number of subprime-backed MBS. Standard & Poor’s announced its intent to review for possible downgrade a similarly sizable number of MBS. Standard & Poor’s announced its intent to change its ratings methodology. Their then current models were not working. Their new models were still being updated. The release date for their new models had yet to be determined. Fixed Income VII: R. J. Hawkins Econ 136: Financial Economics 24/ 35 Lending and Economic Instability Toward experimentally sound policy to reduce economic instability: “[a] ‘sound’ banker, alas! is not one who foresees danger and avoids it,...
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