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| Subprime losses could rise to $400bn |
| 2008-02-10 |
| Senior global policymakers have raised projections for the size of subprime-related credit losses in a move that implies financial institutions will have to increase write-offs. Speaking after the meeting of Group of Seven finance leaders, Peer Steinbrück, German finance minister, said the G7 now feared that write-offs of losses on securities linked to US subprime mortgages could reach $400bn. This is sharply higher than the $120bn credit losses that Wall Street banks and other institutions have revealed in recent weeks - and also far bigger than the US Federal Reserve's estimates for subprime losses last year of $100bn-$150bn. But G7 finance ministers admitted that it remained unclear where much of this subprime pain would eventually emerge, not least because the path of the credit crunch was still uncertain. Mr Steinbrück and other ministers appealed to financial institutions to provide "prompt and full disclosure'' of losses, to restore confidence. "The next 10 days to two weeks will be crucial because we are going to have the first audited accounts [from financial institutions] since the crisis started," added Mario Draghi, governor of the Bank of Italy and chair of the Financial Stability Forum, a committee of international supervisors and central bankers. Mr Draghi said regulators were ready to force banks to reveal their losses and replenish their equity ratios. He did not rule out the possibility that governments might eventually need to inject capital into banks, although he stressed that market solutions should take precedence. The comments followed a weekend of G7 talks that were dominated by the credit turmoil and the implications of these problems for the global economy. The finance ministers said they stood braced for individual and collective action to ensure financial stability and avoid recession. They conceded that growth was likely to slow in all their economies, since the world was facing what Hank Paulson, US Treasury secretary, called a "challenging and uncertain environment", due to tighter credit, a deterioration of the US housing market, higher oil prices and rising inflation. But Mr Paulson said he believed the US stood a good chance of avoiding recession. "I believe that we are going to keep growing. If you are growing, you are not in recession, right?" He said the G7 discussion focused on "how we minimise the spillover that is going on in the capital markets into the broader economy". He said he was not disappointed that Japan and European countries had rejected the idea, floated by Dominique Strauss-Kahn, International Monetary Fund head, for joint efforts to stimulate their economies by fiscal packages. He implied that other countries would not escape a US downturn, describing decoupling as a "myth". |
| Posted by:Anonymoose |
| #4 Just how would you handle it phil_b? |
| Posted by: Sock Puppet of Doom 2008-02-10 22:57 |
| #3 I've worked for a number of banks and banking is basically about managing risk. Risk being the probability a loan won't be repaid. The main way banks manage risk is to limit the amount loaned to some percentage the asset used to secure the loan. Generally this is 50% or less of the current value of the asset, eg shares. Only with real estate is the percentage much higher and the amount loaned close to 100% of the current value of the asset. As long as real estate kept going up in price which it has done every year since 1945 in most countries, everything is fine. When real estate starts a marked decline then all real estate secured lending becomes at risk (because of contagion - selling results in lower prices which results in more selling). How much money are we talking about? At a rough calculation - 30 trillion dollars - several times the market cap of all the banks in the world and roughly the same as all the government debt in the world. A few billion here, a few billion there, pretty soon we are talking real money. Another example of how markets and capitalism are bad at handling large risks. |
| Posted by: phil_b 2008-02-10 22:16 |
| #2 > Japan and European countries had rejected the idea, floated by Dominique Strauss-Kahn, International Monetary Fund head, for joint efforts to stimulate their economies by fiscal packages. It's a dumb idea. Send yourself a cheque and see how much richer you feel. |
| Posted by: Birght Pebbles 2008-02-10 20:49 |
| #1 "why wait for real figures, when you can panic now?" /senior global policymakers. When did they create that position? Why wasn't I notified?? |
| Posted by: Frank G 2008-02-10 20:35 |