*US Mortgage losses could total $531bn: Goldman*

 From correspondents in New York

May 10, 2008 08:40am
Article from: Reuters

GOLDMAN Sachs economists expect a total of $US500 billion ($531 billion)
in residential mortgage credit losses and a renewed slowdown in economic
activity after.

Despite a setback in recent days, many financial market indicators have
recovered substantially since the Bear Stearns/JPMorgan Chase & Co deal
in mid-March, Goldman Sachs chief US economist Jan Hatzius said.

Still, "we think that overall mortgage credit losses will end up being
larger than generally believed," Mr Hatzius said.

"Excess supply in the housing market is still growing; home prices are
already falling at rates that are very rapid by the standards of
previous housing downturns around the world; and US loan-to-value ratios
are much higher than in those previous downturns," he said.

"Ultimately, a painful adjustment needs to take place, certainly in the
housing and credit markets and likely in the broader economy as well,"
Mr Hatzius said.

Even if the shock is moderate, it can have large multiplier effects if
it reduces the equity capital of highly leveraged financial institutions
that mark their balance sheets to market, he said.

Although the leveraged losses story sounds dire, its implications for
the US economic outlook are actually somewhat encouraging at present, Mr
Hatzius said.

Reduced selling pressure or outright purchases of beaten-down assets
will eventually support asset prices, this will push down leverage, and
the resulting balance sheet relaxation will facilitate further asset
purchases, he said.

The bank expects no monetary policy tightening in 2008 or 2009.