I'm driving to work as usual thinking about all of the economics I've stuffed into my head recently and paused to reflect about one thing. When I go to Vons to buy a steak, most of the time I get USDA Choice, but on occasion I'll get USDA Prime. So literally, 'choice' is by definition, 'sub-prime'.
Translate that to the economy. When I doubted all this calamity could befall us, looking at it from the point of failure of the leading subprime lender here in California back in 2007, I can remember being charged to take notice of Roubini. I did, in an indirect way and fell victim to the ranting exclamations of a socialist podcaster who said because Roubini says X we should head into some bizarre direction. I'll find it if I can, just to smack myself and everyone else for not going to the source.
The facts in question were exactly how many subprime and other mortgagees were defaulting or likely to default. The alarming news was something on the order of 4 percent, which was double the usual amount. And now as we squawk comfortably like Santelli, we rather blithely accept that about 92% of mortgage holders are not going to default.
When I get a 92% on any test, I consider that an A-. An A- is subprime. And similarly, people are freaking out that we have unemployment of 10% here in California. That would be 90% employment. Also an A-, also subprime.
Nobody on the planet knows how much wealth via securitization was leveraged on that now widely acknowldeged 8% of failed mortgages. But when you stop and think about it, as Taleb must certainly think, what in the hell were people thinking such that they would bet so much on the idea that the AIG cannot survive mere Choice financial steak?
Get ready for a hamburger economy. It really isn't that bad, is it?
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