U.S. Could Face $2 Trillion Lending Shock

The impact of the U.S. mortgage market crisis on the underlying economy could be "dramatic" as leveraged investors may need to scale back lending by up to $2 trillion, according to investment bank Goldman Sachs (GS.N).

In a report dated November 15, Goldman's chief U.S. economist Jan Hatzius said a "back-of-the-envelope" estimate of credit losses on outstanding mortgages, based on past default experience, was around $400 billion.

Read the whole story: Reuters

Comments

[opines]

09:54 PM on 11/18/2007

There is really no need to worry. To avoid foreclosures, Bernanke will have the Fed issue funds to the lenders so that they can provide distressed borrowers with new loans so that they won't default on their mortgages.

Everybody wins. True, the dollar will continue to plummet, but so what? And to make it more popular, the Fed can condition its advances to the lenders on the promise that they won't charge more than 25% interest.

Announcement of this plan by Bernanke should send the DJI to new highs. Larry Kudlow should get much of the credit. It's his plan.

[MIKEBC]

08:26 PM on 11/18/2007

ALSO WAIT TIL THE FIRST OF THE NEW YEAR WHEN CORPORATIONS DO THEIR YEAR-END 12/31/07 FINANCIALS, IT'S GONNA GET UGLY!

[MIKEBC]

08:24 PM on 11/18/2007

YOU WILL SEE DRAMA AT IT'S BEST IN ABOUT 4 TO 6 MONTHS!

[MIKEBC]

08:23 PM on 11/18/2007

JUST WAIT TIL COMPANIES HAVE TO ADJUST THEIR BALANCE SHEETS TO REFLECT "MARKET PRICE"

[theeconomicfractalist]

11:30 AM on 11/18/2007

Derivatives, Trendlines, Lammert Fractal Progression, and Macroeconomic Saturation.

Globalization and transporation of Asia products have made the transportation index a leading macroeconomic indicator. The US composite transportation index 5 year trendline has been breeched. The trendline for the composite Wilshire lies at about 600 points below its current value. Because bottom trendlines exactly determine the fractal units of quantum Lammert Fractal progession, there is a direct correlation to the larger use of trendlines to determine major directional changes. All growth and decay of asset valuations are based on available investment money which in turn is based on net macroeconomic money/credit growth or net macroeconomic money/growth decay. In the United States money growth is primarily a function of new debt growth.Two key elements of the potential new science of quantitative saturation macroeconomics are that money growth and debt has its limits and that growth to saturation areas occur in quantitative fractal patterns of tradeable composite asset valuations. This quantitative fractal progression is highly predictable. Money decay likewise occurs in quantitative fractal patterns, characterized by the sine qua non of fractals, nonlinearity. America's new financial engineers in their PC cubicle factories who have 'manufactured' derivatives have exponentialized debt. One defaulted real dollar now causes the leveraged disappearance of 5-50 fold virtual derivative dollars. This debt leverage will likely greatly accentuate the nonlinearity normally expected after a macroeconomic saturation area which is directly related to basic consumer asset and debt saturation. The ideal Lammert quantum fractal growth progression is found in 'The Economic Fractalist'. From its 16 August low, Gold, benefiting from dollar weakness, has followed a 11/28/22-23 day growth fractal with expected nonlinearity after the 22nd day of the second fractal.

[winkin]

11:19 PM on 11/17/2007

I believe in simple calculations:
There are about 100 million homes in the country.
If all of them lose 20,000 in value, that's $ 2 trillion folks thought they had.
Change that to 30,000 and you've got $ 3 trillion.
Anybody with common sense saw this debacle coming in 2003...

[givemycountryback]

07:38 PM on 11/17/2007

I don't understand all the sub prime hocus pocus stuff and I am guessing I'm not supposed to. I believe the crooked repugs, Bush cartel, Corporations want it that way. You cannot believe anything you hear on the news because it is fed by the rich scum, so they can keep all the money and take away peoples homes. I am not concerned about people who got in way over their heads by using their homees as bank accounts, take their houses, they deserve it. I am concerned about hard working decent people who have lost their jobs because of Reagonomics and now they are in danger of being homeless. These are the families that didn't ask for this economy of the haves and the have nots.

[castlerider]

03:14 PM on 11/17/2007

And now the rich elite want to see Bush attack Iran so that oil will go to 6 bucks a gallon, and they will make a killing and begin to get some of their money back.

Oh, but don't worry... they will "trickle down" their crumbs of the newly gained money to you poor slobs at the bottom of the food chain when they begin to do better.... or, maybe later... Maybe.

[newunderground]

07:39 AM on 11/17/2007

the return to the mean is a bitch.
Heckuva job, bushie. Oh wait! It's Clinton's fault. Of course.

[ohplease]

01:27 AM on 11/17/2007

Ya know what? If we just all admit, (debters and creditors)that we both fucked up and said ...OK, you have been paying XX and we can accept that as a reasonable return over the next 2/3 years then there will be no MORTGAGE MELTDOWN. Or, they can be dicks and be the MAJOR part of the problem not a part of the solution. Hey, we all screwed up, lets work it out! I want to keep my crib, you don't wont to deal with a short sale or foreclosure. WAKE UP

[worldtraveller]

10:52 PM on 11/16/2007

This is all just economic Darwinism. Excess and weaknesses will be removed and the pain will be enormous. guess what though. Within 10-20 years it will all happen again somewhere, within some market.

[Justinpassing]

10:36 PM on 11/16/2007

There is soo much more news regarding the economy that is not being reported....and sooo much soft-peddeling of soft-items, ....it speaks volumes.

[themodernleader]

09:08 PM on 11/16/2007

My back of the envelope estimate of the Bank losses will be above a trillion dollars for real estate mortgages. What are "credit losses?" People who are exposed to subprime mortgages will lose 80 percent of their principal. Investors exposed to the next risk level up will lose 60-65 percent of their investment, depending upon the severity of the economic downturn we are experiencing. Other loan losses must be predicted based upon the amount of outright fraud that appears to have been committed through the banking industry from the loans to their packaging, reselling as bonds and further entangled with derivatives and other esoteric financial instruments. These financial shennanigans would have been strictly prohibited under the Glass-Steagel Act. That Act was totally rescinded under The Clinton Administration through the machinations of his Secretary of Treasury Rubin, now President of Citigroup.
Permitting Wall Street brokerages and banks to gain control of the American currency is resulting in a currency similiar to the Weimar Republic. Their private interests are bankrupting the public interests.

[fact finder]

08:48 PM on 11/16/2007

Why does this sound eerily familiar.? Hmmm Oh yeah black Friday 1929. Here it comes folks hold on to your hats and do not, repeat do not bend over. Could be wrong but I don't think so. do you.?

[mmckinl]

07:58 PM on 11/16/2007

Probably more than that ...

We are seeing the culmination of Reaganomics. The plans of those who see 'government as evil' and regulation as the 'devil's work'. From the New Deal until the Reagan Revolution we saw nothing of the financial crises or crimes that we have over the last 20 years.

It has been one financial debacle after another every 3-5 years since Greenspan took the reigns of the Fed and pushed deregulation. Business crime soared to new heights , costing taxpayers not thousands or tens of thousands of dollars but hundreds of millions and billions of dollars while gutting our industrial base.
And when crisis and crime aren't running amok corporate pay packages make the looting legal.