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Credit squeeze's potential ripple effects

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At the heart of the changes are the enormous housing-loan losses that are coursing their way through bank earnings, insurance company portfolios, and even individual investors' accounts. As of the end of January, bank write-downs were about $120 billion, according to The Wall Street Journal. Analysts are now talking about $400 billion in total losses, about twice the estimates from last August when the problems in subprime mortgages became known.

"We still don't know who owns all those … products," says Dirk Nitzsche, a senior lecturer at the Cass Business School in London. "It will probably take another six months to know where we stand and how much will have to be written off."

The uncertainty about the amount of bad debt is confounding even veterans of past credit crises. "I have been around a long time and been through all these credit situations in the last 50 years, and this is more opaque and more diverse and more global than any of these former difficulties," says Henry Kaufman, president of Henry Kaufman & Co. in New York. "At the moment it's too early to say if we have a structural change taking place or this is a cyclical development."

Mr. Kaufman, a former chief economist at Salomon Brothers, says he does not doubt that banks will have to be less aggressive in lending unless they can significantly replenish their balance sheets.

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