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IMF Sees Layered Financial Crisis
The International Monetary Fund issued its Global Financial Stability Report yesterday, in which it gives its first full-scale description of the world economic crisis of 2007-2008 and predictions of its consequences. The report holds that the problems on world markets go farther than the liquidity crisis and are the beginning of a worldwide reevaluation of assets and a restructuring of finances in markets besides those where the crisis began.
The report makes use of reports released by other financial organizations, such as Goldman Sachs, UBS, Merrill Lynch, JP Morgan Chase, Leman Brothers and Markit.com to create a unified picture of the losses suffered by the banking system through March of this year. It estimates those losses at $945 billion and sates hat those losses are less in comparison with the world GDP than losses incurred in the Asian crisis of 1998-1999, the Japanese banking crisis of 1990-1999 or the U.S. economic slowdown of 1986-1995. The report describes the losses in a layered structure. The losses of the subprime market (defaults on subprime mortgages) are followed by losses on the derivatives market that was backed up by those assets (asset-backed securities), then assets based on those securities (collateralized debt obligation) and, finally, structured investment vehicles and conduits created by banks.
According to the IMF's calculations, the main losses as of today are localized in the third layer, CDO. The direct losses in the first layer, that is, losses on subprime and Alt-A mortgages, amount to $75 billion on a $900-billion market. In the second layer, at least $210 billion has been lost on the $1.1-trillion market. The $400-billion third-layer market has lost $240 billion, or 60 percent of its volume.
Losses in the fourth layer have so far been insignificant by comparison. In the process described by the IMF, European SIV funds stand to lose more than American funds, although losses on CDO will be slightly greater in the United States than in Europe. The losses of European banks in the second layer are three times greater than those of American banks. Asian banks' losses are least all around. They suffered insignificant losses in the second and third layers.
www.kommersant.com
All the Article in Russian as of Apr. 09, 2008
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