Nov. 13 -- There's a greater than 50 percent probability that the financial system ``will come to a grinding halt'' because of losses from mortgages, Gregory Peters, head of credit strategy at Morgan Stanley, said.The world's biggest banks and securities firms have written down at least $45 billion in the value of assets linked to subprime mortgages for the third quarter after borrowers with poor credit histories failed to keep up with payments. Structured investment vehicles have defaulted on debt, forcing lenders including Legg Mason Inc. and SunTrust Banks Inc. to prop up their money-market funds to cushion them from possible losses.
``You have the SIVs, you have the conduits, you have the money-market funds, you have future losses still in the dealer's balance sheet in the banks,'' Peters said in an interview in New York. ``That's all toppling at once.''
The risk of systemic shock from the current subprime meltdown is quite large in the near term, Peters said. ``It's an overarching concern that we have,'' he said.
Losses stemming from the subprime mortgages have caused a seizure of a lot of other markets, especially the securitization market, Peters said.
The U.S. asset-backed commercial paper market had its biggest weekly drop in two months in the week ended Nov. 7, according to a Federal Reserve report. Debt maturing in 270 days or less and backed by mortgages, credit-card loans and other assets fell $29.5 billion, or 3.4 percent, to a seasonally adjusted $845.2 billion.
Sales of U.S. corporate bonds slowed to $11.1 billion last week, the lowest in two months, according to data compiled by Bloomberg.
``While the near-term concern is the systemic shock of the subprime-related losses, the medium- and long-term concern is the impact on the average consumer,'' Peters said. ``The ultimate irony here is that the U.S. consumer now needs readily available capital more easily than ever, but they're going to have the most difficult time getting it.''
