Leveraged Losses: Lessons from the Mortgage Market Meltdown
Myron Scholes Global Markets Forum
March 13, 2008 noon–1 p.m., Harper Center
One of the most troubling aspects of the subprime mortgage mess, and its spread to related markets, is that the most disrupted markets are “the ones in which financial intermediaries themselves play a pivotal role,” said Anil Kashyap, Edward Eagle Brown Professor of Economics and Finance. He discussed a report he coauthored for the US Monetary Policy Forum that looked at how the losses that these financial institutions have taken are forcing them to shed risk by selling more assets, driving down prices further in a cycle of deleveraging. This analysis, said Kashyap, implied that financial institutions had still not found a new equilibrium. He warned that they needed to rebuild their capital somehow in order for the cycle to be halted in a report titled "Leveraged Losses: Lessons from the Mortgage Market Meltdown."