Thrice-Removed

Sometimes you find interesting nuggets by digging around the websites of primary sources like newspapers and magazines. Other times, you learn the facts through trusted middlemen. In the case of the following post, "Banking System Losses to Hit $1.6 Trillion?" you might say it's a case of thrice-removed sourcing. Yves Smith, the publisher of Naked Capitalism, came across an item by Paul Kedrosky, publisher of Infectious Greed, who came across a report in a Swiss newspaper (which he translated into English). A great many steps, but certainly some information that was worth passing along.

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.

Comments

[richard]

Sell Italian bonds. Italian public debt has reached a record high at 1646,7 billion euros.It is worse than 1992 when the country went very near to declare default(insolvency)

[Jes]

Central Europe remembers the 1930s a bit more vividly than we do, and their banks are therefore a bit more frightened than ours in the current situation. The question is just whether their fear is justified. I hate to say it probably is.

[Ed H]

I saw this as well and have translated the full version on my site. I would love to get your take on the sum. It is frighteningly high.

http://www.creditwritedowns.com/2008/07/16-trillion-new-esimate-on-writedowns.html

[Theinvestingspeculator]

If thoses estimates are right the markets are going a lot lower. And what does it mean for credit going forward. I hear the Kudlows of the world talking about write-ups. It will be interesting to see how this works out.

[Tim]

What I'm stunned about is the lack of coverage in the regular media. The financial meltdown is the biggest story in the country right now. My question is do McCain/Obama even realize whats happening?

[Tim]

What I'm stunned about is the lack of coverage in the regular media. The financial meltdown is the biggest story in the country right now. My question is do McCain/Obama even realize whats happening?