Answers about the Sub-Prime Mortgage Mess

What happened last week with the bailout? What's happening this week with the stock market? Get practical answers from the Chair of Notre Dame's Economic and Econometrics Department, Christopher J. Waller, Ph.D. (Professor Waller is also part of the Kellogg Institute for International Studies.)

Professor Waller gave a talk on the Saturday before the Stanford game as part of the Saturday Scholar Series. Little did he know that his talk on the Sub-Prime Mortgage Mess would come one day after the bailout passed Congress.

Professor Waller is interesting and objective. He does not get into politics, just facts. Yet his talk is extremely interesting and informative. He explains the situation in terms that nonacademics can understand. This talk is simply the best explanation for our current economic condition hands down. I saw it in person and have been thinking and talking about it ever since.

Fortunately, the University videotaped the presentation and put it online. It takes about an hour and 15 minutes to listen to, and it is worth every minute.

Professor Waller explains that there is only a 2.7 % default rate on mortgages nationwide, and why all of us are feeling the pinch. He explains why the bailout is not really a bailout and why it is not likely to cost $700 billion. He gives actual figures for how much and why the investment firms were overleveraged. He reviews the history of mortgage markets since the Great Depression and explains how some of the problems from that time are resurfacing. The presentation describes what happened on the day credit froze -- September 17, 2008 -- and compares mortgage backed securities to Beanie Babies: "Nobody wants them, so no one knows what they're worth." (He also compared the onslaught of problems to Jimmy Clausen getting chased by defensive linemen in 2007.) Professor Waller answers questions about which regulatory changes and accounting rules had an effect on creating this problem and which did not. Finally, he disclaims knowledge of what will happen in the future, but indicates which problem areas might be on the horizon.

After the Stanford game, my friends and I spent more time discussing this presentation than we did the game (and if you knew the intellectual capacity of my friends and I, you would be doubly astounded). I highly recommend that you listen to his presentation.