Post by jeffolie on Nov 19, 2007 12:04:25 GMT -6
Goldman: Subprime May Wipe Out $2 Trillion in Lending
So much for containment. Remember the simpler days when Ben Bernanke told us that the subprime meltdown was an isolated incident, one which would be contained and not affect the rest of the credit markets? Well, throw that out the window (if you’ve been inexplicably clinging to it for some reason) now that Goldman Sachs has said that disruptions caused by subprime mortgage lending may take more than $2 TRILLION off of the global lending table. And for kicks, throw in the ‘R’ word with that decrease.
Losses related to record home foreclosures using a “back- of-the-envelope” calculation may be as high as $400 billion for financial companies, Jan Hatzius, chief U.S. economist at Goldman in New York wrote in a report dated yesterday. The effects may be amplified tenfold as companies that borrowed to finance their investments scale back lending, the report said.
“The likely mortgage credit losses pose a significantly bigger macroeconomic risk than generally recognized,” Hatzius wrote. “It is easy to see how such a shock could produce a substantial recession” or “a long period of very sluggish growth,” he wrote.
Hatzius said his report is based on a “conservative estimate” of financial companies cutting lending by 10 times the loss to their capital. Investors realizing half of the potential losses, at $200 billion, would have to scale back lending by $2 trillion, he said.
Obviously the loss of $2 trillion in lending ability would make it increasingly difficult for companies to achieve growth as borrowing costs make growth costs prohibitive. Lack of growth means a stall out in the economic engine that is already feeling pressure from reduced equity spending by the consumer. This could put the brakes on a big portion (jobs and consumer spending) of the economy.
So much for contained. Why do our leaders feel it is OK to lie to us to keep the proletariat calm in the midst of a problem the likes not seen since the Great Depression?
blownmortgage.com/2007/11/18/goldman-subprime-may-wipe-out-2-trillion-in-lending/
So much for containment. Remember the simpler days when Ben Bernanke told us that the subprime meltdown was an isolated incident, one which would be contained and not affect the rest of the credit markets? Well, throw that out the window (if you’ve been inexplicably clinging to it for some reason) now that Goldman Sachs has said that disruptions caused by subprime mortgage lending may take more than $2 TRILLION off of the global lending table. And for kicks, throw in the ‘R’ word with that decrease.
Losses related to record home foreclosures using a “back- of-the-envelope” calculation may be as high as $400 billion for financial companies, Jan Hatzius, chief U.S. economist at Goldman in New York wrote in a report dated yesterday. The effects may be amplified tenfold as companies that borrowed to finance their investments scale back lending, the report said.
“The likely mortgage credit losses pose a significantly bigger macroeconomic risk than generally recognized,” Hatzius wrote. “It is easy to see how such a shock could produce a substantial recession” or “a long period of very sluggish growth,” he wrote.
Hatzius said his report is based on a “conservative estimate” of financial companies cutting lending by 10 times the loss to their capital. Investors realizing half of the potential losses, at $200 billion, would have to scale back lending by $2 trillion, he said.
Obviously the loss of $2 trillion in lending ability would make it increasingly difficult for companies to achieve growth as borrowing costs make growth costs prohibitive. Lack of growth means a stall out in the economic engine that is already feeling pressure from reduced equity spending by the consumer. This could put the brakes on a big portion (jobs and consumer spending) of the economy.
So much for contained. Why do our leaders feel it is OK to lie to us to keep the proletariat calm in the midst of a problem the likes not seen since the Great Depression?
blownmortgage.com/2007/11/18/goldman-subprime-may-wipe-out-2-trillion-in-lending/