Study sees risk to $1 trillion assets

GENEVA – A further collapse in the price of assets, such as stocks and houses, is the largest risk facing world economies in 2009 and could cost as much as US$1 trillion, according to a World Economic Forum study published on Tuesday.

The Global Risks 2009 report said most countries face a ‘grim’ economic outlook, with markets remaining volatile, unemployment rising and consumer and business confidence falling to record lows.
Even in China – whose economy jumped by about 9 per cent last year – the effects of the global financial crisis will be felt and growth could tumble below 6 per cent, the 31-page report said.
‘2009 will be a year of learning the lessons of the financial crisis; a year where its reach in terms of time and scope becomes more evident; a year that calls for a new financial architecture to be shaped,’ said Klaus Schwab, the forum’s director. ‘The window of opportunity we have to address some of the largest challenges of our time is narrow.’
Other risks include rising costs linked to chronic disease, poor regulation and a spike in protectionist trade measures around the world, according to the report. Political concerns such as instability in Afghanistan and Iraq could also prove costly, but are much less worrisome in economic terms than another major surge in oil and gas prices.
Overall, the combined likelihood and severity of a collapse in asset prices appears to make it the most threatening risk: ‘Although prices for many assets – housing, equities and corporate bonds – have declined dramatically, there is continued scope for further losses over a broad class of assets in the short term,’ the report said.
The report was produced in collaboration with companies including Citigroup Inc., which has had problems in assessing its own financial risks.
The bank bet heavily on a strong US housing market and ample liquidity in credit markets, racking up over US$20 billion in losses since October 2007.
The US government has loaned it US$45 billion and agreed to absorb the losses on a huge pool of mortgages and other assets.
The risks report for 2007 – also in collaboration with Citigroup – made no mention of the threat posed by subprime mortgage debts, which by later that year were already drying up credit markets and threatening the solvency of banks in Europe and North America.
Data fraud or loss appears as a risk for the first time in the 2009 report, but there is no mention of financial fraud and the threat of massive losses linked to the collapse of investment scams such as the US$50 billion Ponzi scheme Wall Street financier Bernard Madoff is accused of operating. – Nampa-AP