Some Very Negative News Flow Friday Morning

The more restrictive lending climate is a bigger risk than the losses from subprime. From Bloomberg:

Losses related to record U.S. home foreclosures using a ``back-of-the-envelope'' calculation may be as high as $400 billion for financial companies, Jan Hatzius, chief economist at Goldman in New York, wrote in a report. The effects will be amplified as banks and hedge funds that borrowed to finance their investments scale back lending, according to the report.

``The likely mortgage credit losses pose a significantly bigger macroeconomic risk than generally recognized,'' Hatzius wrote. ``A $1 mortgage credit loss could result in a reduction in lending by significantly more than $10.''

and another article:

Stiglitz said there is a 50 percent chance of a recession in the U.S. and that growth will certainly slow to less than half its 3 percent potential. A worldwide jump in credit costs following the collapse of the subprime mortgage market is choking off finance to American consumers.