U.S. Could Face $2 Trillion Lending Shock

Reuters:

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

[CharlesMac]

Actually this is the first utterance of what the true impact would be considering the too-cheap-­by-market-­standards money that was passed out. Even with the government policies, and Fed financial and monetary manipulations, value is value. The market will search it out. The bill will come due.

People are so obsessed with their portfolios. The fear of 9/11 is peanuts compared to the thought of the market dumping. That's why we couldn't understand why so many Americans were OK with the Bush thugs handing the the keys over to the corporate and Wall Street bloodsuckers. People just wanted their companies in their portfolios to report more and more earnings. Total and complete obsession.

Meanwhile, the rest of the country who were trying to get a job, make a decent wage so they didn't have to live paycheck to paycheck, not work 60 hours to keep their job, not have to decide between heating and eating.... were pissed, watching the common wealth of the nation handed over to the moneychangers.

BTW, this is also meant to scare the chit out of the Fed and George's prized legacy. The banks are going to extort concessions every way they can. Particularly by fear.

The banks have done everything they could to convince everybody their latest announcements of write downs was it, over and done. It ain't working, because, as of yesterday, the banks have to fess up to their 2nd and 3rd class assets. And people are starting to realize we are going to have to chase the equity bubble through the entire economy.

What Goldman-Sachs is saying is that available money will be tight. So you are going to have to pay higher interest on the smaller supply.

The rate of that higher interest will be the difference we have to pay to make up the gap between what the cheap money cost and what it should have cost.

If you have any debt with a variable rate.. fixed rate it or kill it before the hikes come.

[Sundialsvc4]

I've got a radical idea ... let's look at this thing from the bottom-up rather than the top-down and see if we can avert this dire prediction.

If my calculator is correct, you're saying you've got about 8 million loans of (say) $250,000 each that you consider to be "absolutely no-good." Or maybe it's 2 million bigger loans of 16 million smaller ones ... it doesn't matter. You're saying that you're worried that they're just going to default.

Okay, so let's decide that we are NOT going to bail you out: we're going to hold your feet to the fire.

You gotta make those loans good. You can do that by... reducing the interest, re-pricing the loan to a smaller amount of principal (which probably will bring the outstanding balance much closer to what the loan is actually worth...) but you are NOT going to be allowed to "stick" the consumer with your mistake, nor are you going to be allowed to "stick" the Federal Government, nor(!) are you going to be allowed to show empty-pockets to your stockholders and say to them "so solly, no monny."

It's one thing to say, "we're going to lose $2 trillion." Quite another to say, "look, we're only going to make $500 billion and it's going to take 20 years to do it but we're 85% confident that we're going to actually make that."

"Reagaonomics" is over, for good. The music is stopped, and the doors are barred. You're not going to be allowed to sneak out the back door.

[curiousasheck]

What happened to cities under Plexiglas and Jetson cars?

[godlessclif]

Euro=$1.46­5 and rising. The 41 billion infusion dropped it from $1.47 to $1.46

[mmckinl]

So , who needs to borrow 2 trillion ... ?

The takeover specialists. Those are the people who are largely responsible for the loss of real jobs anyway.

My eyes swell with tears for Black Rock.

[loki]

Am I wrong but didnt our Gov dump like 41 Billion into the stock market just a week or so ago to help offset the effects of the so called "mortgage problem" ? It was like a one day story and then faded away. I wonder what became of the money? Who's pocket it went into? It sure didnt help anyone who really needed it? did it?

[MajorKong]

In retrospect, selling our houses to each other probably wasn't the best thing to bet the economy on.

[curiousasheck]

Booze consumption is a record levels.

[Justinpassing]

Goldman Sees Subprime Cutting $2 Trillion in Lending (Update4)
By Kabir Chibber

Goldman's outlook matches forecasts by Joseph Stiglitz, the Nobel-prize winning former World Bank economist, who said in an interview today that the U.S. faces a ``very major slowdown, maybe recession'' because of a ``consumption binge'' fueled by household borrowing.

``What it all comes down to is that Joe Six-Pack has been taking equity out of his house and supporting the U.S. economy,'' said Simon Ballard, global credit strategist at ABN Amro Asset Management in London. ``Now house prices are correcting, the bubble is deflating. You're going to see the engine of global growth significantly weaker.''

The above is ludicrous drivel from paid establishment WHORES. The truth is that Uncle Buck, formerly known as Uncle Sam, foisted a housing bubble at the behest of the Bush League as their preferred engine for driving the economy. But as with all they touch, it has imploded on their most worthy, half-witted heads. My hope is that a world of wrath will be their ultimate pay.

The biggest joke is that, in this time of economic crisis, people are fleeing into Treasuries, as if the full faith and credit of Uncle Buck is rated as “AAA” , when in reality Uncle Buck’s rating is BWAAHAAHAA­AHAAHAAAAH­AAAHAAAHAA­AHAHAHAHHA­HAHAHAHAHH­AA, because most of Uncle Buck’s credit and credibility it is hinged to Fannie and Freddie.

[zizyphus]

I don't believe any figures now that it is obvious all the federal agencies are thug-run mafias cooking the books. I bet the banks aren't holding nearly the reserves they are required to. Just a hunch.

[realitytrumpsbull]

Yep, they done fucked up, and they let their
foreign buddies come in and fuck up, too...
now we're gonna pay for it...

[robinhood1]

We should consider ourselves lucky if we "only" have a recession. If things really get out of hand, you'll be able to watch the storming of 740 Park Avenue on your local evening news.

[yourkillingmelarry]

Do you ever get the feeling that the Fed, the Treasury, and Financial establishment all knew a couple of years ago how bad this was going to be but have only allowed little pieces of the puzzle be known at a time so as to not cause a panic. When Starbucks tells you people are cutting back on latte's its time to start worrying.