Liquidity, Default, Risk
8th December 2008
Brad DeLong of the Cato Institute takes a realistic look at the crisis du jour.
Thus we have an impulse — a $2 trillion increase in the default discount from the problems in the mortgage market — but the thing deserving attention is the extraordinary financial accelerator that amplified $2 trillion in actual on-the-ground losses in terms of mortgage payments that will not be made into an extra $17 trillion of lost value because global investors now want to hold less risky portfolios than they wanted two years ago.
Our current financial crisis remains largely a mystery: a $2 trillion impulse in lost value of securitized mortgages has set in motion a financial accelerator that we do not understand at any deep level that has led to ten times the total losses in financial wealth of the impulse.
December 9th, 2008 at 14:46
Brad DeLong is a member of the Cato Institute only if George W. Bush joins MoveOn.org.
But seriously, DeLong is one of the big lefty Keynesian Macro guys and is a serious supporter of the political Left. He is no member of Cato.
December 9th, 2008 at 16:13
His appearance on the Cato Unbound site must have confused me.