The International Monetary Fund just released its latest Global Financial Stability Report. You can download the entire, mammoth 237-page PDF here if you’re so inclined. But the headline is that the IMF has increased its estimate of the ultimate cost of the credit crisis. The organization now says the crisis could ultimately cost $4.1 trillion through the end of 2010; U.S. losses alone were estimated at $2.7 trillion — up from a $2.2 trillion estimate in January and a $1.4 trillion estimate in October. Those figures include losses to be shouldered by all manner of financial entities, from banks and insurers to pension funds and other investors.
IMF: Credit losses to hit $4.1 trillion worldwide through 2010
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Mike, Having spent years in the real estate development field, I can tell you the only reason General growth was allowed to wait this long to file bankruptcy was their lenders kept giving them extensions to repay defaulted mortgage payments. Their lenders finally gave up and decided to forclose which triggered General Growth’s bankruptcy filing. Of course there are hundreds of other commercial property developers/owners in the same circumstance just waiting for their lenders to give up on them. Once that happens, it will be like a mudslide. Just like unemployment numbers,enough time passes and suddenly the extensions run out of their time, and the avalanche happens. So many property developers are in default but it is under the radar until the lenders force either bankruptcy or forclosure. It isn’t until the lenders face the fact that their debt will never be repaid in full that they finally trigger forclosure or bankruptcy. And this process of not giving up can last for months, even years. Thus the General Growth bankruptcy could have happened a long time ago if the lenders had wished . Thus there are thousands of commercial properties merely waiting to have loans forclosed on. And those properties are just now becoming known having flown under the radar for so long.As Martin weiss puts it, recovery can’t take place until debt destruction takes place. And all the money pumping out of Washington keeps defering the day of reckoning for all this incredidibly over-priced commercial real-estate.The values of these properties are worth half of what the lenders once thought they were. And thats even stetching it. The blood will flow soon and the lenders will be taking baths right along with the developers. In my opinion, the lenders will have to resell the properties at about 60% discounts and be forced to finance the rerpurchase of these properties after all is said and done. And remember the lenders probably financed 95% of the property’s inflated value and thus wil only recoup half of their mortgage amount or have to write off 50% of it’s investment. Those are huge writedowns for the lenders who are comprised of insurance companies, pension funds, big banks,etc. Martin has it right. Until these writedowns occur, real recovery can’t take place.Dave