Credit tails

Model Risk

When times are good, investors take on more risk. When the cycle turns, they offload this risk. The ensuing flight to quality may cause a gradual market downturn or, more likely, lead to a collapse. This description could be applied in general to a financial crisis, but could also be used to describe the recent meltdown in the US subprime mortgage market.

The surge in US subprime delinquencies redefined the market perception of mortgage risk, and this quickly spread to other sectors of the