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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
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
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
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- Fall '08