The ongoing credit crisis could trigger losses of $1 trillion, according to an assessment by the International Monetary Fund.

In its twice-yearly review of the global financial markets, the UN agency also warned that there is a “collective failure” to grasp the extent of leverage in the financial system that could further damage the health of the US economy.

According to a report on Reuters:

“The credit shock emanating from the US subprime crisis is set to broaden amid a significant economic slowdown,” Jaime Caruana, director of the IMF’s monetary and capital markets department, said at a news conference.

“The deterioration in credit has moved up and across the credit spectrum to prime residential and commercial mortgage markets, and to corporate credit markets. As the credit cycle turns, default rates are likely to rise across the board.”

“The horses are out of the barn,” says Gary North in The Daily Reckoning.

“The subprime real estate loans have been made. The slightly safer Alt-A loans have been made. The unqualified borrowers bought their homes at the top of the housing bubble: 2005, 2006. In 2007, the market visibly reversed. Now the delinquency rate has risen.

“The investment banks that loaned smart people all that stupid money are now hemorrhaging. They are lining up to get paid by busted hedge funds. When the courts and the lawyers get through with them, whatever is left over will have to be put on the books at market value, not book value.”