IMF: Subprime Mortgage Market Loss Close to $1 Trillion
The International Monetary Fund is estimating that the losses due to the subprime mortgage market crisis will likely remove $1 trillion from the global economy. Even as financial leaders in the United States express their optimism that the credit market crisis may be coming to an end, the true effects are just beginning, according to some. The Chicago Tribune reports on the subprime mortgage market crisis:
“What began being a credit shock in the subprime market is starting to spread,” said Jaime Caruana, director of the IMF’s monetary and capital markets department. “It is important to repair balance sheets, to boost capital, and it will be necessary also that central banks continue to provide liquidity to financial markets.”
This is evident by the fact that not only is the mortgage market in trouble in the U.S. (some estimates say that only 20 percent of expected losses have been reported to this point), but the British housing market is starting to feel the effects of the subprime mortgage market crash.
As consumers in America and Britain are affected, it is likely that consumers will limit their spending (it is already apparent in disappointing U.S. retail numbers from the month of March). This in turn could cause other problems in the foreign markets in the East that supply Western consumers with goods.
Other problems occur in the investment world. The Chicago Tribune points out that foreign investments in U.S. banks are in trouble due to subprime mortgage market losses:
Sovereign wealth funds in Asia and the Middle East have invested $76 billion in banks such as Morgan Stanley, Citigroup, Credit Suisse and Merrill Lynch. Still, the IMF estimated the probability of a bank defaulting has increased nearly fifteenfold since January 2007.
No matter how you look at it, the interconnectedness of financial markets ensures that the subprime mortgage market crisis will probably spread well beyond U.S. borders.
Tags: subprime mortgage market, mortgage market crisis, home mortgage loan, mortgage loan blog,
investments, global economy
