Roughly half of all subprime losses are attributable to no-doc lending's adverse-selection problem (not verifying borrowers attracts bad credit) and the other half to the modeling assumption that housing prices could never fall, which was built into stress tests; both assumptions were knowably unreasonable in advance.

factualpending

Speaker

Charles Calomiris

Evidence Quote

in terms of statistical decomposition about half of it is assuming that there's no adverse selection problem... the other half of it is building into your stress test the assumption that housing prices could never fall

Source

Charles Calomiris on the Financial Crisis 10/26/2009EconTalk
Created: 6/15/2026, 9:20:15 AM

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