The International Monetary Fund just bumped its estimate of U.S. losses on bad mortgages and other defaulted debt to an amazing $2.7 trillion, up from a $2.2 trillion estimate in January. Worldwide losses could hit $4 trillion, the fund says. These results were leaked to The Times a couple weeks ago and referenced in this Hancock column. Now it's official. The only reason Citigroup is selling for close to $3 a share is the dubious hope that Washington will bail it out again and again.

Without a thorough cleansing of banks’ balance sheets of impaired assets, accompanied by restructuring and, where needed, recapitalization, risks remain that banks’ problems will continue to exert downward pressure on economic activity. Though subject to a number of assumptions, our best estimate of writedowns on U.S.-originated assets to be suffered by all holders since the outbreak of the crisis until 2010 has increased from $2.2 trillion in the January 2009 Global Financial Stability Report (GFSR) Update to $2.7 trillion, largely as a result of the worsening base-case scenario for economic growth.

In this GFSR, estimates for writedowns have been extended to include other mature market-originated assets and, while the information underpinning these scenarios is more uncertain, such estimates suggest writedowns could reach a total of around $4 trillion, about two-thirds of which would be incurred by banks.