Financial firms could lose as much $400bn as a result of the US sub-prime crisis, Goldman Sachs estimates.
Goldman's chief economist Jan Hatzius says the situation has deteriorated significantly since Federal Chairman Ben Bernanke predicted mortgage related losses of between $50bn and $100bn back in July.
Hatzius says leveraged investors may have to reduce lending by $2trn as a result of the write-offs and the macroeconomic consequences “could be quite dramatic”.
He noted a "substantial recession" could even be on the cards if it occurred over course of one year.
"The likely mortgage credit losses pose a significantly bigger macroeconomic risk than generally recognised," he says.
"While the uncertainty is large, the associated downward pressure on lending raises the risk of significant weakness in economic activity."
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Two global vehicles
'Further plug advice gap'
Must appoint separate CEOs and boards
Advisers do come out well
Will report to Mark Till