U.S. Subprime Meltdown Costs the World $8.6 Trillion

There’s something happening here. What it is ain’t exactly clear.

There’s a man at the Fed who’s confused. And now investors, they feel quite abused.

You get the idea. The Dow fell 173 points in New York when Ben Bernanke and Hank Paulson went to Capitol Hill to repeat how bad things are in the housing and credit markets. Australian stocks have opened down to begin the day. So let’s unpack what the dynamic duo said, and take a look at a few other non-trivial matters.

Bernanke told the Congress critters that, “The outlook for the economy has worsened in recent months and the downside risks to growth have increased.” Yes. They have. “To date,” he added, “the largest economic effects of the financial turmoil appear to have been on the housing market, which, as you know, has deteriorated significantly over the past two years or so.”

We’re not going to spend any time reciting all the evidence that points to more woes in the housing market. It’s been well established. What’s at stake now is how much longer this slow-motion crisis goes on and-the special burden of today’s letter-what happens to stocks in a lower interest rate environment.

Bank of America chief market strategist Joseph Quinlan told investors that the current financial crisis is, “one of the most vicious in financial history.” A research paper from his bank says the related fall-out from the crisis has caused $8.6 trillion in stock market losses worldwide, trimming a full 14.6% from the total world market capitalisation.

“It could take months or even years before Wall Street and others get a handle on the true cost of the US subprime meltdown and the attendant global credit crunch,” Quinlan added. “While subprime loans were once thought to be relatively small in scale and contained to just one segment of the US financial sector, the opposite has become painfully evident over the past few months.”

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