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Sunday, December 23, 2007

Barclays: Losses May Reach $700 Billion

by Calculated Risk on 12/23/2007 12:47:00 PM

For a very bearish take on the credit crisis, see: Crisis may make 1929 look a 'walk in the park'. The article includes a $700 billion loss estimate from the head of credit at Barclays capital:

Goldman Sachs caused shock last month when it predicted that total crunch losses would reach $500bn, leading to a $2 trillion contraction in lending as bank multiples kick into reverse. This already seems humdrum.

"Our counterparties are telling us that losses may reach $700bn," says Rob McAdie, head of credit at Barclays Capital. Where will it end? The big banks face a further $200bn of defaults in commercial property. On it goes.
UPDATE: My main interest in this article was the quote from Barclays Capital. There has been a growing agreement that the mortgage credit crisis would result in losses of perhaps $400B to $500B; this is the first estimate I've seen significantly above that number.

I noted last week that a $1+ trillion mortgage loss number is possible if it becomes socially acceptable for the middle class to walk away from their upside down mortgages. And that doesn't include losses in CRE, corporate debt and the decrease in household net worth.

The S&L crisis was $160B, so even adjusting for inflation, the current crisis is much worse than the S&L crisis (see page 13 of this GAO document).