The subprime mortgage crisis in the US could lead to the opening up of a US$2 trillion black hole as banks and financiers stop lending money because of mounting losses, the leading Wall Street bank Goldman Sachs warned on Friday.
Goldman Sachs chief economist Jan Hatzius, who is regarded as an expert on the domestic housing market, warned that losses on outstanding loans could balloon to US$400 billion as borrowers struggled to repay debts.
That figure is well ahead of the US$50 billion or so losses already announced by major banks including Citigroup and Merrill Lynch, and well ahead of the Federal Reserve's own estimates. In July Fed Chairman Ben Bernanke estimated that losses on loans could be up to US$100 billion.
But the effects of the crisis are already being felt in other areas of the economy as banks tighten their lending criteria and speculative investment vehicles, which invested heavily in subprime mortgages, find it increasingly hard to borrow money on the short-term markets.
High-profile private equity deals have already collapsed or been delayed because of the difficulty of raising finance, including the sale of the US drinks business of Cadbury Schweppes and the possible buyout of Virgin Media.
This week Cerberus Capital Management backed out of the US$4 billion buyout of United Rentals.
Banks, meanwhile, have been tightening their lending criteria.
Nobel prize-winning former World Bank economist Joseph Stiglitz warned yesterday that "over the last five to six years our economy has been bolstered by the real estate sector. Americans have been taking money out of their houses to finance a consumption binge."
He said that with this avenue of funds closed off, the US faced a "very major slowdown, maybe recession."
Hatzius estimates in his note that the wider implications of the subprime mortgage crisis may be "quite dramatic."
"If leveraged investors see US$200 billion of the US$400 billion aggregate credit loss, they might need to scale back their lending by US$2 trillion," he said.
That is roughly equivalent to 7 percent of total US residential, corporate and government debt.
FIREPOWER: On top of the torpedoes, the military would procure Kestrel II anti-tank weapons systems to replace aging license-produced M72 LAW launchers Taiwan is to receive US-made Mark 48 torpedoes and training simulators over the next three years, following delays that hampered the navy’s operational readiness, the Ministry of National Defense’s latest budget proposal showed. The navy next year would acquire four training simulator systems for the torpedoes and take receipt of 14 torpedoes in 2027 and 10 torpedoes in 2028, the ministry said in its budget for the next fiscal year. The torpedoes would almost certainly be utilized in the navy’s two upgraded Chien Lung-class submarines and the indigenously developed Hai Kun, should the attack sub successfully reach operational status. US President Donald Trump
TPP RALLY: The clashes occurred near the Chiang Kai-shek Memorial Hall on Saturday at a rally to mark the anniversary of a raid on former TPP chairman Ko Wen-je People who clashed with police at a Taiwan People’s Party (TPP) rally in Taipei on Saturday would be referred to prosecutors for investigation, said the Ministry of the Interior, which oversees the National Police Agency. Taipei police had collected evidence of obstruction of public officials and coercion by “disorderly” demonstrators, as well as contraventions of the Assembly and Parade Act (集會遊行法), the ministry said in a statement on Sunday. It added that amid the “severe pushing and jostling” by some demonstrators, eight police officers were injured, including one who was sent to hospital after losing consciousness, allegedly due to heat stroke. The Taipei
NO LIVERPOOL TRIP: Taiwan’s Lin Yu-ting, who won a gold medal in the boxing at the Paris Olympics, was embroiled in controversy about her gender at that event Taiwanese boxer Lin Yu-ting (林郁婷) will not attend this year’s World Boxing Championships in Liverpool, England, due to a lack of response regarding her sex tests from the organizer, World Boxing. The national boxing association on Monday said that it had submitted all required tests to World Boxing, but had not received a response as of Monday, the departure day for the championships. It said the decision for Lin to skip the championships was made to protect its athletes, ensuring they would not travel to the UK without a guarantee of participation. Lin, who won a gold medal in the women’s 57kg boxing
The US has revoked Taiwan Semiconductor Manufacturing Co’s (TSMC, 台積電) authorization to freely ship essential gear to its main Chinese chipmaking base, potentially curtailing its production capabilities at that older-generation facility. American officials recently informed TSMC of their decision to end the Taiwanese chipmaker’s so-called validated end user (VEU) status for its Nanjing site. The action mirrors steps the US took to revoke VEU designations for China facilities owned by Samsung Electronics Co and SK Hynix Inc. The waivers are set to expire in about four months. “TSMC has received notification from the US Government that our VEU authorization for TSMC Nanjing
RSS