Nailing Down a Kessler Bet
By Bryan Caplan
My calculations, which assume 50% impairment on subprime loans, suggest it is possible, all in, for this portfolio to generate between $1 trillion and $2.2 trillion — the greatest trade ever.
I’m happy to bet at even odds that taxpayers will lose money, not earn trillions. The only problem is nailing down the specifics. What is the cleanest way to measure the bail-out portfolio’s return ex post?
P.S. I’ve previously suggested a 10-year window – try to work with that. 🙂