The G7 forecast that subprime damage could total $400 billion is hardly surprising to anyone who has been following that sorryhttp://www2.blogger.com/img/gl.link.gif saga. Predictions that were once regarded as wildly pessimistic have been borne out as correct.
What is noteworthy about the G7 remarks is that things have gotten so bad that there is nothing to be gained by denying the magnitude of the problem. The officials in effect admitted that they did not know where all the troubled paper reisdes, and thus are uncertain how the credit crunch will play out.
From the :
Senior global policymakers have raised projections for the size of subprime-related credit losses in a move that implies financial institutions will have to increase write-offs.
Speaking after the meeting of Group of Seven finance leaders, Peer Steinbrück, German finance minister, said the G7 now feared that write-offs of losses on securities linked to US subprime mortgages could reach $400bn.
This is sharply higher than the $120bn credit losses that Wall Street banks and other institutions have revealed in recent weeks – and also far bigger than the US Federal Reserve’s estimates for subprime losses last year of $100bn-$150bn.
But G7 finance ministers admitted that it remained unclear where much of this subprime pain would eventually emerge, not least because the path of the credit crunch was still uncertain. Mr Steinbrück and other ministers appealed to financial institutions to provide “prompt and full disclosure’’ of losses, to restore confidence.
“The next 10 days to two weeks will be crucial because we are going to have the first audited accounts [from financial institutions] since the crisis started,” added Mario Draghi, governor of the Bank of Italy and chair of the Financial Stability Forum, a committee of international supervisors and central bankers.
Mr Draghi said regulators were ready to force banks to reveal their losses and replenish their equity ratios. He did not rule out the possibility that governments might eventually need to inject capital into banks, although he stressed that market solutions should take precedence.