Monday, July 7, 2008

Banking system losses to hit $1.6 trillion?

(Naked Capitalism) Paul Kedrosky posted on a report published in a Swiss paper (he courteously provided the English translation) of the results of a study prepared for hedge fund Bridgewater Associates that projects that total losses to the financial system from the credit crisis will reach $1.6 trillion. Note that losses taken to date are only $400 billion. This is consistent with the off-the-cuff view of Ted Forstman in an interview with the Wall Street Journal that we are only in the second inning of the credit crisis.

The IMF has forecast total losses from the credit contraction of $945 billion, and that included damage to hedge funds and other investors, not to the financial intermediaries that are an integral part of the functioning of advanced and even not so advanced economies. By contrast, Goldman Sachs has put the likely damage at $1.1 trillion, George Magus of UBS at $1 trillion, and hedge fund manager John Paulson at $1.3 trillion. So this is far and away the grimmest estimate to date, particularly given its focus on financial intermediaries.

Reader Dwight, who pointed out this post to us, wonders if this report (or perhaps thinking along similar lines) is the basis for recent apocalyptic calls from RBS, Barclays, Fortis. SocGen, and the BIS.

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