The mounting global credit crisis could develop into a financial contagion and could wipe 800 billion US dollars of value from the books of US and global financial institutions, an official of the International Monetary Fund said.
"Current estimates suggest that the global financial system could be facing losses of close to 800 billion spread across banks, insurance companies, hedge funds and pension funds, although some analysts are projecting much higher losses," Anoop Singh, IMF director for the Western Hemisphere Department, told a conference in Brazil. He also saw growing signs that the problems in the US housing market are starting to spread beyond the subprime mortgage market to housing prices abroad - that might "deflate abruptly," - with potential financial implications as well. The US Federal Reserve slashed interest rates by 0.75 percentage points on Tuesday. To boost the flagging US economy the Fed had cut overnight rates by 2.25 percentage points to 3% since mid-September. The Fed has already taken a series of radical steps in an attempt to stabilize the financial system and has also used several other unorthodox steps to provide liquidity, including 30 billion US dollars in financing to enable JPMorgan to buy Bear Stearns. It also set up a new programme to provide cash to a wider range of big financial firms through loans at its discount window.