The New York Times warned this week that toxic loans are wreaking havoc on the world financial markets, and are a threat to global growth.

It is no secret that we have never seen credit growth like over the past decade of this magnitude. Many of the losses on bad loans made by lenders both in the consumer and commercial mortgage sectors have not been fully realized on their books.

The New York Times warns, “the giant, stagnant pool of loans that companies and people around the world are struggling to pay back.”

toxic loans

The facts are that if the banks start marking these losses in real time, it may push thousands of homeowners into foreclosure and many business owners into bankruptcy. The end result could be catastrophic to not only the U.S. markets, but also the world wide economy.

This NYT’s article addresses these concerns on a global scale.

“In theory, it makes sense for banks to swiftly recognize the losses embedded in bad loans — and then make up for those losses by raising fresh capital. The cleaned-up banks are more likely to start lending again — and thus play their part in fueling the recovery.

But in reality, this approach can be difficult to carry out. Recognizing losses on bad loans can mean pushing corporate borrowers into bankruptcy and households into foreclosure. Such disruption can send a chill through the economy, require unpopular taxpayer bailouts, and have painful social consequences. And in some cases, the banks might find it extremely difficult to raise fresh capital in the markets.”

Read more from the NYT at this link.

Erik Sandstrom
LoanSafe's Mortgage Expert
I'm a Senior Loan Officer and LoanSafe mortgage expert. If you need a live rate quote, or need help getting a new mortgage, please call me direct anytime at 619-379-8999.