IMF: Fallout from Global Financial Crisis Will be Long Lasting
September 25th, 2007Just as long as it’s economic fallout and not some other kind of fallout.
Via: Independent:
The global credit crisis is not over, and its effects will be long lasting, the International Monetary Fund has warned.
The organisation’s twice-yearly Global Financial Stability report warned that many of the lax lending practices of the past few years will have to change, and economic growth will be crimped by the current correction.
Adding to the gloom, Rodrigo Rato, the IMF’s managing director, said yesterday the US will bear the brunt of the economic consequences of the crisis, with the bulk of the impact not being felt until next year.
Debt markets have convulsed after finally recognising the extent to which credit discipline has deteriorated in recent years, the IMF’s report stated. “The potential consequences of this episode should not be underestimated, and the adjustment process is likely to be protracted. Credit conditions may not normalise soon, and some of the practices that have developed in the structured credit markets will have to change.”
The practice of rolling together lots of different kinds of debt, including low quality US mortgage loans, and selling them on piecemeal in the global financial markets has diffused the responsibility for checking that the underlying loans are sound, the IMF said. The use of off-balance sheet funding vehicles has also made it harder to judge the creditworthiness of major banks.
