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Cost Of The Crunch $2 Trillion, Says Goldman Liz Moyer Leave it to Goldman Sachs, winner of the "we-avoided-the-subprime-meltdown" derby (so far), to put a damper on everyone else's pre-holiday weekend. The firm's economic team put a $2 trillion price tag on the ultimate economic cost of the credit crunch, including $400 billion in losses directly tied to mortgages--well north of recent estimates by economists, including those at the Federal Reserve. In July, for example, Fed Chairman Ben Bernanke put subprime-related losses at $50 billion to $100 billion. "Even at the time, these numbers seemed quite optimistic," wrote Goldman (nyse: GS - news - people ) economist Jan Hatzius, in a note Friday. "Now it is clear to most observers that they are far too low."
(Article continues below) That's bound to disappoint Wall Street, reeling from losses linked to holdings of credit derivatives and mortgage securities. Some have called on the Fed to do more to ease the credit crunch and restore the fixed-income markets to normal. But in a speech in New York on Friday, Fed Gov. Randall Kroszner said the central bank probably won't need to reduce interest rates further to help the economy. "The current stance of monetary policy should help the economy get through the rough patch during the next year, with growth then likely to return to its longer-run sustainable rate,'' he said. Data do not "suggest to me that the current stance of monetary policy is inappropriate.'' The credit crunch that began in July and spilled over into the fall has put enormous pressure on most of Wall Street's biggest banks. Write-downs in the value of credit derivatives and loans will total more than $50 billion for the second half of the year, with Citigroup (nyse: C - news - people ), Merrill Lynch (nyse: MER - news - people ) and Bear Stearns (nyse: BSC - news - people ) particularly hard hit.
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