Financial Markets - OECD

ISSN 0378-651X. Financial market Trends OECD 2008. The Subprime Crisis: Size, Deleveraging and Some Policy Options Adrian Blundell-Wignall *. The paper revises our previous USD 300 bn estimate for mortgage related losses to a range of USD 350-420 bn. In doing this the paper explicitly rejects the previous approach based on implied defaults from ABX pricing, because these prices are affected by illiquidity and extreme volatility; they will likely lead to misleading estimates of losses. Instead it builds a proper default model approach and allows for recovery of collateral via house sales over time.

VII draws attention to Asia, where direct subprime holdings are relatively less. In Asia, orderly unwinding of bubbles and avoidance of future problems turn on attitudes to exchange rate policy. Section VIII looks at spill-over risks to corporate bonds and equities. While corporate balance sheets are in good shape on average, there is a fat

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