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Banks' credit losses could hit $400B US, Goldman Sachs says
Last Updated: Friday, November 16, 2007 | 3:49 PM ET
CBC News
Losses in the credit market could wind up hitting $400 billion US and financial institutions may cut their lending by $2 trillion US, according to an economist with Goldman Sachs Group Inc.
Jan Hatzius, the chief economist at Goldman Sachs in New York, said the cut in lending, if it took place in the span of one year, could tip the U.S. economy into recession. If the drop happens over two to four years, it would produce "very sluggish growth," he wrote.
"The macroeconomic consequences could be quite dramatic," Hatzius said.
In a report dated Thursday, Hatzius based his calculations on a "conservative" estimate that banks, brokerages and hedge funds would reduce their lending by 10 times their capital losses.
"The response to those kinds of risks is to lower interest rates, and we think the Fed will lower interest rates,'' Hatzius told Bloomberg. Goldman Sachs expects the Federal Reserve will cut interest rates by one-quarter of a percentage point on Dec. 11.
Banks and brokerages, including several in Canada, have already revealed billions of dollars in losses stemming from the beleaguered U.S. housing market and the global credit crunch.
Last Updated: Friday, November 16, 2007 | 3:49 PM ET
CBC News
Losses in the credit market could wind up hitting $400 billion US and financial institutions may cut their lending by $2 trillion US, according to an economist with Goldman Sachs Group Inc.
Jan Hatzius, the chief economist at Goldman Sachs in New York, said the cut in lending, if it took place in the span of one year, could tip the U.S. economy into recession. If the drop happens over two to four years, it would produce "very sluggish growth," he wrote.
"The macroeconomic consequences could be quite dramatic," Hatzius said.
In a report dated Thursday, Hatzius based his calculations on a "conservative" estimate that banks, brokerages and hedge funds would reduce their lending by 10 times their capital losses.
"The response to those kinds of risks is to lower interest rates, and we think the Fed will lower interest rates,'' Hatzius told Bloomberg. Goldman Sachs expects the Federal Reserve will cut interest rates by one-quarter of a percentage point on Dec. 11.
Banks and brokerages, including several in Canada, have already revealed billions of dollars in losses stemming from the beleaguered U.S. housing market and the global credit crunch.
