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Paragraphs to ponder
Via Mark Thoma, Susan Woodward has an idea:
The true values of mortgage assets are generally thought to be a mystery. But little-mentioned among discussions ... of the crisis is that the Treasury has access to the best resources in the business for estimating the hold-to-maturity values of mortgages and mortgage-backed securities. This team is at Fannie Mae, which the government now effectively directs.
You might laugh, or cry, but the reality is that most proposed paths out of the crisis involve a circularity problem. And, courtesy of Chris Masse, here is another paragraph to ponder:
Krugman's award could bring Bush face-to-face with his antagonist. The president typically invites Nobel Prize winners to the White House in November or December.
Posted by Tyler Cowen on October 14, 2008 at 07:38 AM in Economics | Permalink
Comments
Nice dramatics, but the answer remains.... scrap FAS 157.
Posted by: kp at Oct 14, 2008 8:53:52 AM
At this point, I'm not sure the issue is as much the hold-to-maturity values, as those are calculated based on - I'm guessing - a somewhat 'normal' real estate environment.
The question is: as home prices deteriorate (or maybe that should be "if" home prices continue to deteriorate), what are delinquency rates likely to be from a credit perspective (I can't make my payments) and what are they likely to be as people realize they're so underwater that it's in their best interest to just walk away (I won't keep putting money into this albatross). I don't know if these can be calculated.
Posted by: meter at Oct 14, 2008 8:54:54 AM
Hey Tyler - are you going to hire the guy? He's got an interesting resume.
Seems like it should be easy to figure out value of mortgages, but if I read "The Panic of 2007" correctly, the problem is that there is a veil between the securitized investments and the underlying mortgages that cannot easily be drawn aside.
Posted by: Rich Berger at Oct 14, 2008 11:40:03 AM
Did Jimmy Carter or Al Gore come around for a visit?
Posted by: John Mansfield at Oct 14, 2008 5:04:58 PM
John: Gore did at least. I remember reading the articles about his visit. (Apparently they were cordial in public and had a little half-hour chat in the Oval Office or something.)
Posted by: gwern at Oct 14, 2008 7:35:42 PM
Krugman should certainly pay a courtesy call to thank the man who some say is the most responsible for his winning the prize at this particular time.
Posted by: at Oct 14, 2008 8:03:28 PM
