OECD Predicts up to $300B in Mortgage-Based Losses Globally

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by: Jonathan Liss

The Organization for Economic Cooperation and Development [OECD] believes total global losses stemming from the U.S. subprime crisis could reach as much as $300 billion. The view contradicts recent estimates by the likes of Citigroup, Merrill Lynch and Swiss Re for total global losses of about $50 billion. According to the Paris-based OECD, "As adjustments have often occurred in waves, and as higher funding costs take typically several months to have their full impact on companies or consumers, it may well be that the recent correction is only a precursor of a more protracted downturn." Most of the losses will occur not in the form of mortgages themselves, but rather in the form of writedowns and fire sales of mortgage-backed securities repackaged within Collateralized Debt Obligations [CDOs]. The OECD believes the losses may not peak until March 2008.

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