BCA Research - Independent Investment Research Since 1949

BCA Research - Independent Investment Research Since 1949: "About BCA Our Services Contact Info Careers Help BCA In the News Home U.S. Subprime Losses To Total /$200 Billion 11:22:00, August 30, 2007 The losses related to bad U.S. mortgage paper could end up being larger than the 1980s S&L losses in dollar terms. About 60% of subprime mortgages carry an adjustable rate, and $650 billion will reset at a higher interest rate in the next 16 months. Even without factoring in a recession, we estimate that the losses on bad subprime and alt-A paper could amount to about $200 billion over the 2007-2011 period (1.5% of today’s GDP). This compares with $153 billion (2.5% of 1990 GDP) in losses associated with the S&L meltdown in the late 1980s. Spread out over several years, such losses do not seem overwhelming on their own. However, it is the knock-on effects that are the larger risk to the economy, including a hit to consumer confidence and wealth, a curtailment of credit availability, and increased selling pressure in the housing market. Bottom Line: Fed rate cuts cannot solve the subprime mess, but can limit the negative impact on the economy."