Nobel Laureate Merton Says $4 Trillion Lost as Home Prices Fall (Sree Vidya Bhaktavatsalam)

 Sept. 23 (Bloomberg) -- Robert Merton, the Nobel Prize- winning economist and co-founder of Long-Term Capital Management, said plunging real-estate prices wiped out as much as $4 trillion in value for homeowners and mortgage financers.

"A large amount of wealth has truly been lost, and these are losses that have not been offset by gains," Merton said today during a panel discussion at Harvard Business School in Boston.

U.S. home prices tumbled as the credit crisis sparked by defaults on subprime mortgages led to tightened lending standards and fewer loans. Home prices dropped 5.3 percent, seasonally adjusted, from a year earlier, the Office of Federal Housing Enterprise Oversight said today in a report. The share of U.S. homes in foreclosure reached 2.75 percent, almost tripling since the five-year housing boom ended in 2005.

"Like it or not, those losses have to be borne by house- owners, by those who financed them and by the general population", Merton said. "This is not simply a liquidity crisis."

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