US housing difficulties cause for concern but no systemic threat
Thursday, 26 July 2007
PARIS, July 25 (AFP): The downturn in the US housing sector, which has sparked market jitters, is of serious concern but poses no major risk of an overall US financial meltdown, the ratings agency Moody's said today.
"The shock-absorption capacity of the 'core' of the financial system is very high," Moody's said in a comment.
While the current crisis in the US "subprime" mortgage lending market "does not raise genuine systemic risk concerns, ... there are still serious reasons to worry," the report said.
Subprime lenders, who make loans to people with questionable credit histories, have lately suffered widespread mortgage defaults in the United States, sparking fears the trend will dampen consumer spending and overall US growth.
US Federal Reserve Chairman Ben Bernanke said last week that he expected "significant financial losses" from failed subprime real estate loans but only a limited effect on the economy.
"What we've learned since early this year is that a lot of the subprime mortgage paper is not as good as was thought originally, and there are clearly going to be significant financial losses ... associated with defaults and delinquencies on these mortgages," he said.
"Some estimates are in the order of between 50 billion and 100 billion dollars of losses associated with subprime credit products."
But the Fed chief said the crunch in subprime housing did not appear to have spilled over to the broader economy, although there was a risk it could occur.
"We have not seen a significant effect on consumption," Bernanke said. Moody's Wednesday maintained that the accounts of the leading US financial institutions were sound. "Their ability to withstand shocks is very high, perhaps never higher."
It pointed to five securities firms, Bear Stearns, Goldman Sachs, Lehman Brothers, Merill Lynch and Morgan Stanley.
"The shock-absorption capacity of the 'core' of the financial system is very high," Moody's said in a comment.
While the current crisis in the US "subprime" mortgage lending market "does not raise genuine systemic risk concerns, ... there are still serious reasons to worry," the report said.
Subprime lenders, who make loans to people with questionable credit histories, have lately suffered widespread mortgage defaults in the United States, sparking fears the trend will dampen consumer spending and overall US growth.
US Federal Reserve Chairman Ben Bernanke said last week that he expected "significant financial losses" from failed subprime real estate loans but only a limited effect on the economy.
"What we've learned since early this year is that a lot of the subprime mortgage paper is not as good as was thought originally, and there are clearly going to be significant financial losses ... associated with defaults and delinquencies on these mortgages," he said.
"Some estimates are in the order of between 50 billion and 100 billion dollars of losses associated with subprime credit products."
But the Fed chief said the crunch in subprime housing did not appear to have spilled over to the broader economy, although there was a risk it could occur.
"We have not seen a significant effect on consumption," Bernanke said. Moody's Wednesday maintained that the accounts of the leading US financial institutions were sound. "Their ability to withstand shocks is very high, perhaps never higher."
It pointed to five securities firms, Bear Stearns, Goldman Sachs, Lehman Brothers, Merill Lynch and Morgan Stanley.