VOA常速英语2008年-IMF: Credit Squeeze in US Could Get Worse

The International Monetary¹ Fund Tuesday said the turmoil² in world credit markets that began with rising home loan defaults in the United States is not over and losses could hit $945 billion as the impact spreads into the global economy.  The Bloomberg financial news services estimates that banks and securities firms have so far written off only a fraction of that total, $232 billion. VOA's Barry Wood has more from Washington.

IMF specialists say the overall risks to global financial stability have increased sharply in recent months. Jaime Caruana is the principal author of the IMF report on financial stability.

"The credit shock emanating³ from the US subprime crisis is set to broaden amid a significant economic slowdown," he said.  "The deterioration⁴ in credit has moved up and across the credit spectrum⁵."

As bank losses have soared, lenders have tightened⁶ standards and, despite lower interest rates, many commercial and consumer loans are still hard to come by. Caruana says more than six months into the crisis, credit markets are still not functioning normally.

"We have seen confidence quickly evaporate, ending in liquidity⁷ driven solvency⁸ events that threaten the core financial system," he added.

He is referring to the US central bank-orchestrated rescue of the Bear Stearns investment bank, which teetered on the brink⁹ of bankruptcy¹⁰ because of loan losses.
 
The IMF is not alone in its worry that the credit crisis could worsen. Morris Goldstein, a financial specialist at Washington's Peterson Institute, says if home prices continue to fall in the United States, defaults on mortgage loans could grow beyond the two million predicted for this year.

"It's been estimated that if US housing prices fall by an additional 15 percent or so, approximately a third of US homeowners will have negative equity¹¹ in their homes," he explained.  "This raises the question of whether willingness to pay will have to be addressed along with ability to pay."

US home prices on average declined by 10 percent in 2007, a factor IMF economists¹² say contributed to the global credit crisis.  Many US mortgage loans were bundled into securities and sold to financial institutions worldwide.

Caruana says if the situation worsens, it may be necessary for governments to spend taxpayer¹³ money to stabilize¹⁴ markets.

"I think we have to be careful on that," he cautioned.  "And the question is to what extent the situation continues to deteriorate¹⁵."

The IMF says lax regulation and a failure to recognize the risks of highly leveraged¹⁶ loans contributed to the credit crisis. Financial markets, it says, will come under increased strain as world economic growth decelerates.