Goldman sees subprime cutting $2 trillion in lending

The slump in global credit markets will force banks, brokerages and hedge funds to cut lending by $2 trillion, triggering the risk of a “substantial recession” in the U.S., according to Goldman Sachs. Losses related to record U.S. home foreclosures using a “back-of-the-envelope” calculation may be as high as $400 billion for financial companies, Jan Hatzius, chief economist at Goldman in New York wrote in a report. The effects may be amplified tenfold as companies that borrowed to finance their investments scale back lending, the report said.

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