Wednesday, November 21, 2007

Something to Be Thankful for....

I don't know how many of you have been using the "sub-prime" story in your class. I've always been a believer in using headlines to add interest and draw attention to principles when teaching economics and personal finance. And this story certainly has provided a lot of fodder.

But given the impact it has had on markets over the past couple of months, I think you and your students need to keep one thing in mind as you discuss this. Take a look at this link (link no longer operative). The whole sub-prime sector is a very, very small portion of the world's financial market. And while a large number to consider (.7 trillion), even if the whole market was "marked to zero" or written off, it actually would be less than the stock market can lose in a single day's trading in the major stock exchanges.

Now, I don't mean to minimize the issue. There are significant human costs when people lose their homes. But many of the people in this market continue to make their mortgage payments, and the market is not likely to be written off in total. So what's to be thankful for? This could be much bigger than it is. And while substantial, the damage may be less than we fear when we read, watch or listen to the news.

Thanks and a HT to Felix Salmon at Market Movers and Tyler Cowen at Marginal Revolution.

I look forward to your comments. Have a Happy Thanksgiving.

1 comment:

Anonymous said...


Very timely. Thanks for the information (especially the classroom resources) and showing how things fit in to the "big picture". I'm pointing teachers in your direction.


PS The Bears just pulled that one out, but it was entertaining.