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Gross: Mortgage Writedowns To Total $1T

07-25-2008

People & Companies in the News

Falling U.S. home prices will compel financial firms to write down $1 trillion from their balance sheets—crimping bank lending and sparking sales of assets, said Bill Gross, who manages the world's biggest bond fund, according to Bloomberg News.

A total of $5 trillion of mortgage loans, or almost half of the nation's home loans, belong to ``risky asset categories'' such as subprime and Alt-A, Gross of Pacific Investment Management Co. said in commentary posted on the firm's Web site today. About 25 million U.S. homes are at risk of negative equity, which could lead to more foreclosures and a further drop in prices, he said. A home has negative equity when it's worth less than the mortgage with which it was bought.

``The problem with writing off $1 trillion from the finance industry's cumulative balance sheet is that if not matched by capital raising, it necessitates a sale of assets, a reduction in lending or both that in turn begins to affect economic growth,'' Gross wrote.

The

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