US mortgage crisis points to the edge of precipice - (STANDARD) 12月 19日 星期三 05:30AM
Few people knew at the start of the year the meaning of subprime real-estate loans or how they might affect the United States and global economies.
Today, worries are growing that the crisis that began with mortgage failures and spread to banks and brokerages may push the US economy into a recession and put the entire global economy at risk.
Subprime loans flourished at the end of the US housing boom as lenders offered mortgages to people with shaky credit records in an effort to cash in on surging prices.
These loans were packaged into securities that were sold to investors around the world, with little regard to what would happen when low "teaser" rates were reset to increase payments from homeowners.
When a wave of defaults began to hit, US and global banks began to see billions of dollars in losses on their balance sheets. The lenders had to tighten credit, crimping consumer and business spending and threatening the overall economy.
Goldman Sachs economist Jan Hatzius says his "back-of-the-envelope calculation" now suggests losses of around US$400 billion (HK$3.12 trillion) for global banks and investors.
Although this may not seem large in the overall economy, Hatzius says the effect is magnified because banks need to scale back their lending to keep capital ratios intact after accounting for the losses. As a result, he said lending could be cut by US$2 trillion. "Even if this occurs gradually, and even if there are some offsets from reduced credit demand and increased lending by other sectors, the drag on economic activity could be substantial," said Hatzius in a note to clients.
Adding to the woes from housing are near- record energy prices and a weak US dollar that could fuel inflation and hurt business confidence. Some say a recession is a possible scenario.
"The US is on the precipice of its first consumer recession since 1991, which was the last time the market suffered from a confluence of high energy prices, weakening employment conditions, real estate deflation and tightening credit," said David Rosenberg, Merrill Lynch's chief North American economist.
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