Archive for October 2007

Happy Halloween

October 31, 2007

Nothing like taking a witch to the bus stop to get on with all the other excited and costumed children. Someone was very cheery as she put on her costume for school today. Sadly I have to teach a night class tonight, so will miss the neighborhood trick or treating. 😦

I think that 6 years old might be my favorite age yet. But I say that about every age so far.

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A worthwhile read

October 23, 2007

SSRN-Understanding the Subprime Mortgage Crisis by Yuliya Demyanyk, Otto van Hemert

Understanding the Subprime Mortgage Crisis

Federal Reserve Bank of St. Louis – Banking Supervision and Regulation
New York University – Department of Finance October 9, 2007

We analyze the subprime mortgage crisis: an unusually large fraction of subprime mortgages originated in 2006 being delinquent or in foreclosure only months later. We utilize a loan-level database, covering about half of all US subprime mortgages, and identify two major causes. First, over the past five years, high loan-to-value borrowers increasingly became high-risk borrowers, in terms of elevated delinquency and foreclosure rates. Lenders were aware of this and adjusted mortgage rates accordingly over time. Second, the below-average house price appreciation in 2006-2007 further contributed to the crisis.

It was not just floating rate loans originated in 2006, but all 2006 vintage loan types—fixed rate, etc— with high default rates.  The debt to value ratio seems to matter the most in explaining the increase in risk.   But the effect of high debt to value is much worse for loans originated in 2006 than loans originated in  2001 in terms of predicting problems.  Evidence I guess about who were getting the loans in different periods.  Mortgage rates adjusted for the risk; lenders tried to compensate.  We don’t know if it is enough yet.


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What I learn when I travel and watch late nite tv

October 18, 2007

There is a world champion key lime pie eater. And world champion asparagus eater. Wow.

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While I am thinking about music

October 16, 2007

Some nostalgia…

Bedazzled!: “Saturday Night” by The Bay City Rollers (Video)

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Recent cd obsession

October 16, 2007

We listened to Iron and Wine all day on Saturday.

L. is really enjoying that all of us are taking Mandarin; she even wants to practice with us. Though she did tell us ‘Your accent is not as good as mine. And it never will be as good.’

I predicted wrong

October 15, 2007

3 Americans to Share Nobel Prize in Economics – New York Times

Leonid Hurwicz of the University of Minnesota, Eric S. Maskin of the Institute for Advanced Study at Princeton University and Roger B. Myerson of the University of Chicago shared the award for “having laid the foundations of mechanism design theory,” the Royal Swedish Academy of Sciences said.

Their work addresses situations in which markets work imperfectly, such as when competition is not completely free, consumers are not fully informed or people hold back private information. It also addresses cases where transactions do not take place openly in public markets, but within companies, in private bargaining between individuals or between interest groups.The prize winners’ groundbreaking work has been pivotal in assessing how institutions perform under such conditions, and in designing the best mechanism to make sure that goals, such as social welfare or private profit, are reached, the academy said. It also said the winners’ work has helped determine whether government regulation may sometimes be necessary.

But not just when regulation may be necessary, but a way of thinking about how to design the regulation, taking into account the informational constraints.  The work lead to a revolution in the design of instututions and the interpretation of existing institutions.


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October 12, 2007

Eugene Fama: Home Page

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