Then and Now

The IMF quarterly publishes a report called the Global Financial Stability Report (GFSR) which reports and analyzes the financial crisis around the world.

Here is a graphic that shows you just how bad bank loans have gone in this crisis. Other than that huge peak of the Great Depression, there really is nothing else to compare to the current crisis:



When you think of 4% of all loans going bad, that is horrible news. The bank's profit margin on a loan is usually tiny, something like 1%, so to lose 4% of loans means you lose all your profit for something like 4 years in a row just to cover the losses!

The financial losses keep mounting. The GFSR reports have estimated these losses for the United States:

October 2008 expected $1.4 trillion in losses
January 2009 expected $2.2 trillion in losses
April 2009 expects $2.7 trillion in losses

The growth of the losses is stunning and has not yet stopped getting worse. The world economy is headed into a black pit and there is no real sign that the fall has stopped.

The losses for the whole world are now estimated at $4.1 trillion.

From page 27 of the report:

As a result of continued pressures in credit markets, global financial institutions and other holders could face larger potential writedowns, according to our estimates (Table 1.3). Looking at the range of assets originated in the United States over the same cumulative period (2007–10) as in prior GFSRs, expected writedowns have risen to some $2.7 trillion, up from the $2.2 trillion estimated at our interim update in January 2009, and from the $1.4 trillion estimated in October 2008.32 The rise represents the credit deterioration that the worsening economic cycle is creating (Figure 1.27). Considering a much wider set of outstanding loans and securities to include European-originated loans and related securities as well as Japanese-originated assets (totaling some $58 trillion compared to earlier estimates based on $27 trillion of U.S. originated loans and securities) provides a broader, albeit more uncertain, assessment of potential writedowns of some $4.1 trillion.33 While banks are expected to bear about two-thirds of the writedowns, other financial institutions including pension funds and insurance companies also have significant credit exposures.34 Among other market participants, hedge funds have suffered losses related to both mark-to-market declines and forced asset liquidations due to redemptions.