Booming economy alert - Lenders leery on loans
posted by
Clyde
7:06 AM
Economist: $2 trillion lending crunch may be ahead
The mortgage wipeout could result in a $2 trillion cutback in lending and have dramatic implications for the U.S. economy, according to Wall Street investment bank Goldman Sachs.
The housing slump is expected to end up costing banks, hedge funds and other lenders an estimated $400 billion as defaults on home loans rise, according to Goldman economist Jan Hatzius.
A $400 billion loss is equal to just about 2.5 percent of U.S. stock market capitalization - or a bad day on Wall Street, he wrote in a commentary on Thursday.
But most stock investors don't react aggressively to capital losses the way banks and other lenders do. A bank that aims to maintain a capital ratio of 10 percent would need to shrink its balance sheet by $10 for every $1 in credit losses, the note said.
(Link)
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