(chinadaily.com.cn)
Updated: 2008-03-18 16:04

The US subprime credit crunch that is plaguing the US financial market and economy is far from over, and its global aftermath is expected to linger for quite a long time, predicts Andy Xie, a well-known economist.

Xie made the forecast after US-based JP Morgan Chase said Sunday it would acquire rival Bear Stearns in a deal valued at US$236.2 million - or $2 a share - a stunning collapse for one of the world's largest and most venerable investment banks.

Commenting on the recent Standard & Poor report that said the subprime crisis may bottom out at the end of this June, the independent economist based in Shanghai and Hong Kong said he believes the end of the subprime woes are still not in sight, the 21st Century Business Herald reported.

Xie, a former Morgan Stanley chief economist in Asia, said JP Morgan's bailout means Bear Stearns, one of the five major US investment banks, has actually gone bankrupt. Risky bets on securities tied to subprime mortgages - loans given to customers with poor credit history - crippled Bear Stearns.

He expects more large financial institutions may face the same fate as Bear Stearns in the future as a result of the current subprime debacle, which many economists consider the biggest crisis in the US financial market since World War II.

Other analysts also said the bid to rescue Bear Stearns was more than just saving one of the world's largest investments banks - it is propping up the US economy and the global financial system. An outright collapse could cause huge losses for banks, hedge funds and other investors connected to Bear Stearns.

Xie noted that after an initial estimation, the losses in the financial market resulting from the subprime crisis stand at $160 billion. He added the subprime woes have gone beyond subprime loans to involve many other areas such as leverage financing, construction and credit card loans.

The economist pointed out that many financial institutions are already embroiled in bad debt crises that have yet to be exposed.

He said chances are slim for the world to recover from the impact of the US housing woe and subprime crunch in the near term, adding that recovery is near impossible until the US housing market climbs out the steep hole.

A large number of houses are still in stocks in the US and if they enter the market, house prices would drastically drop further, Xie said.