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PARIS: 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 Wednesday.
“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 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 on 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, Merrill Lynch
and Morgan Stanley.
“Profitability is very high,
with $45 billion accumulated in 2006 as opposed to $12 billion in
1998,” the report said.
“The main risk in our view at
this juncture is not that the system may suddenly collapse but
rather that it derives a feeling of invulnerability from this
episode, when losses have been eventually digested,” Moody’s
warned.
--AFP
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