IMF puts latest meltdown at top of the heap
Jacqueline Thorpe
Province
TORONTO — The International Monetary Fund said yesterday that losses stemming from the U.S. subprime-mortgage meltdown could swell to nearly $1 trillion US, far outstripping the Asian banking crisis, the U.S savings-and-loan crisis and even the Japan banking crisis of the 1990s.
The estimate of losses is the biggest to date, eclipsing a recent projection of $600 billion from UBS AG, and dwarfing the $232 billion in losses financial institutions have announced so far.
“The current turmoil is more than simply a liquidity event, reflecting deep-seated balance-sheet fragilities and weak capital bases, which means its effects are likely to be broader, deeper and more protracted,” the fund said in its twice-yearly global financial-stability report.
The Washington-based body, which gathers for its spring meeting at the end of the week, forecasts losses for U.S. residential loans and securities will hit $565 billion, losses on commercial real estate will hit $240 billion, corporate-loan losses will rise to $120 billion, and consumer-loan losses will reach $20 billion.
Global banks would shoulder $440 billion to $510 billion of the losses, with insurance companies, pension funds, money-market funds, hedge funds and other institutional investors accounting for the balance.
A total of $945 billion would surpass losses of roughly $275 billion stemming from the S&L crisis from 1986-95, the Asian banking crisis of 1998-98 that reached about $400 billion, and the Japanese banking crisis at about $740 billion.
The IMF said a deeper credit crunch could develop, hitting household borrowing, business investment and asset prices, and feeding back onto employment in a vicious cycle.
Furthermore, signs of a housing downturn are surfacing in certain European markets including the U.K. Canada, however, still pumps out solid housing numbers.
© The Vancouver Province 2008
