Moody’s estimated the extent to which mortgage defaults were correlated with one another by building a model from past data—specifically, they looked at American housing data going back to about the 1980s.101 The problem is that from the 1980s through the mid-2000s, home prices were always steady or increasing in the United States. Under these circumstances, the assumption that one homeowner’s mortgage has little relationship to another’s was probably good enough. But nothing in that past data would have described what happened when home prices began to decline in tandem. The housing collapse
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