Goldman Sachs chief economist sees mortgage credit losses as high as $400B

NEW YORK (Thomson Financial) - Goldman Sachs chief economist Jan Hatzius has issued a note addressing the latest turmoil in the U.S. mortgage market, saying past default experience in different home price environments now suggests likely credit losses on outstanding losses of as much as $400 billion.

Hatzius, in a note entitled 'Leveraged Losses: Why Mortgage Defaults Matter,' said the macroeconomic implications of these losses 'could be quite dramatic' and still have a heavy impact on lending and overall economy.

'For example, if leveraged investors see $200 billion of the $400 billion aggregate credit loss, they might need to scale back their lending by $2 trillion,' the note states. 'Even if this occurs gradually, and even if there are some offsets from reduced credit demand and increased lending by other sectors, the drag on economic activity could be substantial.'

Hatzius noted how much worse things have gotten since Fed Chairman Ben Bernanke gave an estimate for subprime-related credit losses of between $50 billion and $100 billion in July.

'Even at the time, these numbers seemed quite optimistic,' said Hatzius. 'Now, it is clear to most observers that they are far too low. At present, we believe that a reasonable estimate would peg expected credit losses on the currently outstanding stock of mortgages in the $300-$400 billion range.' Michael Baron mb COPYRIGHT Copyright Thomson Financial News Limited 2007. All rights reserved. The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.