‘Substantial recession’ may follow lending cuts in US, Goldman Sachs warns

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The credit crunch is so serious that it may force the US banking system to cut lending by as much as $4,000 billion (£2,000 billion), prompting a “substantial recession” in the US, according to stark new research by Goldman Sachs.

Jan Hatzius, chief US economist at Goldman Sachs, has calculated that banks, brokerages and hedge funds could lose as much as $400 billion on sub-prime mortgage-related investments by the time the dust settles from the surge in defaults on high-risk home loans in America.

By Mr Hatzius’s estimation, every dollar in losses reduces the ability of highly leveraged Wall Street institutions to lend by $10, as they typically aim for a so-called capital ratio of 10 per cent.

“If leveraged investors see $200 billion of the $400 billion aggregate credit loss, they might need to scale back their lending by $2 trillion,” Mr Hatzius said.

http://business.timesonline.co.uk/tol/busi...icle2886499.ece

[Sofiyya 1,687]

Ari, you are just full of good news today.

[GaryC 7]

Really, my bank just told me I am approved for a mortgage. Even with my "less than perfect" credit. Go figure.

[mawilson 2,133]

Goldman Sachs is full of #######. I'm pretty sure they are trying to conceal huge losses

after the wave of subprime-related writedowns that hit almost every other investment

group (such as Merrill Lynch who lost $7.9 billion), and now they are scaremongering

on bets that the economy will weaken and the Fed will budge on interest rates.

[Jasman0717 9]

I hope there isn't a huge inflation. Anyone remember when home loans were double digit