10 April 2008

US Losses Likely to Top $1 Trillion - IMF and Soros

Worst from credit crisis yet to come; losses likely to top US$ 1 trillion
10 Apr, 2008, 1020 hrs
The Economic Times

SHANGHAI: The credit crisis is far from over, billionaire financier George Soros warned Thursday, urging regulators to move faster to contain damage from the collapse of the housing finance markets.

``I think the situation is more serious than the authorities admit or recognize,'' Soros told journalists in a conference call. Measures taken so far to slash interest rates and stimulate the economy were ``necessary but not sufficient,'' he said.

``Because of that, I think the situation is going to get worse before it gets better.'' Soros is promoting a new book, ``The New Paradigm for Financial Markets: The Credit Crisis and What It Means.'' He has urged regulators to move more aggressively to improve market oversight to curb risks from excessive reliance on debt for financial speculation.

He said he agreed with the International Monetary Fund's estimate of more than US$1 trillion (euro640 billion) in losses linked to the collapse of mortgage-backed securities. Losses disclosed by financial institutions so far are related only to the decline in value of those financial instruments, Soros said.

``They do not reflect in any way a possible decline in the value of the loans held by the banks,'' he said. ``We have not yet seen the full effect of the possible recession.''

Soros pointed to the potential for massive losses from complex investments linked to the U.S. subprime mortgage market, such as credit default swaps, or CDS,
which allow investors to put bets on the likelihood that companies will default on bond payments.

He described as a ``Sword of Damocles'' the US$45 trillion (euro29 trillion) worth of credit swaps. ``That's more than five times the entire government bond market of the United States. It's almost equal to the entire household wealth of the United States,'' Soros said. ``This US$45 trillion market is totally unregulated,'' he said.