In an article from Scotland published on Sunday, July 29th, we see a great analysis of the mortgage crisis as it pertains to future loans, bank profits, and investment funds.

What is the potential magnitude of the losses? According to some back-of-the-envelope calculations flying round Wall Street last week, about half of the $1 trillion of US sub-prime mortgages might get foreclosed, with the underlying properties sold at 50% off. That would amount to a $250bn hit.

A more realistic number is the estimate of Federal Reserve chairman Ben Bernanke. This stands at $100bn. But what about the hung-up private equity deals? Reportedly, $200bn needs to be financed. Some companies are delaying or cancelling their debt offerings.

According to the Wall Street Journal, the banks are on the hook “because they are now unable to persuade skittish hedge-fund managers to buy big buyout-related debt packages”. Last week alone, they were stuck with about $20bn of unwanted loans to Chrysler Group and the UK’s retail chemist chain Alliance Boots.

Worse, banks have already committed to provide an additional $200bn-plus of buyout debt. “If that ends up on their balance sheets,” warns Wall Street strategist Ed Yardeni, “any further decline in loan prices could slam their bottom lines.”

See the full story here