As some withdrawal of monetary accommodation commenced in response to perceived or visible inflationary pressures, the sub-prime crisis revealed these vulnerabilities starkly as confidence plunged, markets froze and triggered off panic among investors and lenders regarding their inability to value complex risky assets and structured derivative products.
According to some estimates, total losses related to sub-prime could exceed US $ 200 billion (The Economist, 2007), over a fifth of India’s GDP measured at market exchange rates. According to the OECD estimates, losses could amount to US $ 300 billion.