subprime-related debt

A few months ago, in a piece entitled “Subprime Geopolitics,” we addressed two questions. The first was whether the U.S. economy was heading into recession. The second was whether such a recession would represent anything more than the normal business cycle, or whether it would represent a fundamental, long-term shift in the way the American economy works. We answered that while the economy could reasonably go into recession — and we would not be surprised if it did — in our view, a recession did not seem imminent. As for whether such a recession would represent a fundamental shift in U.S. economic life, we answered, no, this would not be “the big one.”

Losses from the falling value of subprime mortgage assets may reach $300 billion to $400 billion worldwide, Deutsche Bank AG analysts said. Wall Street's largest banks and brokers will be forced to write down as much as $130 billion because of the slump in subprime-related debt, according to a report today by New York- based credit analyst Mike Mayo,. The rest of the losses will come from smaller banks and investors in mortgage-related securities.