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This article describes the failure to focus on the "what if" there is a plunge.

The plunge was not the only reason for an increased default rate. It was a secondary reason.

The primary reason happened prior to the plunge.

There was a housing "bubble" based on loose lending criteria and temporarily low interest rates.

The Adjustable rate mortgage was underwritten to the fixed rate portion only and not to potential market rates after this "teaser" rate expired. These mortgages "reset" to much higher rates because Greenspan started increasing interest rates in 2005-06.

Increased defaults and foreclosures crashed the CDO market months before the credit freeze and housing price crash.

For more details check out:

http://analytical-crm.com/UnMoney_TBTF.pdf

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