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Sat, Jul 21, 2007 - Page 10 News List

Bernanke sees little impact from subprime loan losses


US Federal Reserve Chairman Ben Bernanke said on Thursday he expects "significant financial losses" from failed subprime real estate loans but only a limited effect on the overall economy.

Bernanke, responding to questions in a second day in Congress for the Fed's semiannual economic report, indicated the problems with subprime loans -- made to people with weak credit histories -- may be greater than expected.

"What we've learned since early this year is that a lot of the subprime mortgage paper is not as good as was thought originally, and there are clearly going to be significant financial losses ... associated with defaults and delinquencies on these mortgages," he said.

"Some estimates are in the order of between US$50 billion and US$100 billion of losses associated with subprime credit products," he said.

The Fed chief, reiterating comments in his presentation on Wednesday, said the crunch in subprime housing does not appear to have spilled over to the broader economy, although there is a risk this could occur.

"We have not seen a significant effect on consumption," Bernanke said.

Bernanke said home prices are not showing any broad declines, however.

"It should be pointed out that by some of the most reliable indices that house prices nationally speaking have not declined, they've only risen more slowly, so we've not yet seen anything except in a few local areas akin to a decline in house prices," he said.

He argued that even with any decline in home prices, only about 4 percent to 9 percent of that decline would show up in lower consumer spending.

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