The International Monetary Fund has said that the financial sector faces potential losses of almost $1,000bn as a result of the credit crisis. It has also warned of further loses on prime mortgages, commercial real estate, leveraged loans and consumer finance, according to FT.com.

Jaime Caruana, head of monetary affairs and capital markets at the Fund said:

“The deterioration in credit has moved up and across the credit spectrum,”

In a document entitled: ‘Global Financial Stability Report’ a less than optimistic tone can be spotted when they say, “systemic risks have risen sharply” since October.

We have mentioned this possibility in previous posts, the same people who recklessly loaned funds in the now rocky real estate market have also loaned funds in other equally risky areas. Printing and pumping cash into the system alleviates a liquidity problem, however, it does not address the problem of insolvency, which is the root cause of this financial mess.

Jaime Caruana goes on to say that: “that there had been a collective failure to appreciate the extent of leverage in the financial system” and that balance sheet strains could limit banks’ capacity to lend.

It would appear that the numbers involved will soon be beyond our comprehension. We are in for a torrid time so the flight to a safe haven is likely to continue for some time with gold and its associated mining stocks being one of the main beneficiaries.

Have a good one.

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