Morgan Stanley takes $9.4bn hit

China's willingness to invest in Morgan Stanley was seen as a vote of confidence on Wall Street and the firm's shares rose 4% in Wednesday trading.

But the heavy losses will increase pressure on chief executive John Mack, who described the performance as "deeply disappointing" and said he would not accept a bonus for 2007.

The woes in the sector have already seen the firm's highest ranked woman, Zoe Cruz, leave the firm.

Other banks have also been hit, and Merrill Lynch's boss Stan O'Neal and Citigroup's chief executive Charles Prince have both left their posts recently.

"Huge write-downs caused the ouster of Stan O'Neal and Charles Prince," speculated Peter Cardillo, a market analyst at Avalon Partners.

"Maybe Morgan Stanley will follow them."

Sovereign investment

Morgan Stanley, which saw a $1.2bn write-down in the three months to the end of August, said that it still had about $1.8bn-worth of exposure to sub-prime mortgages on its books.

Over the past few weeks, a string of global banks have indicated how much they have lost as a result of exposure to investment products linked to US sub-prime mortgages.

So far announced losses have totalled over $70bn, but the final toll might be much higher.

Mayors see major hit to economy

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The home building industry will suffer disproportionately, with new home construction sinking to its lowest level since 1993, the organization predicts.

And, with home equity levels in steep decline, growth in consumer spending will be curtailed - the mayors expect it to increase by just 2 percent.

Municipalities will start to feel the pinch with a decline in the property tax growth rate. Some places could even experience an outright decline in collections. The housing decline will also affect state coffers, as transfer taxes plummet along with home sales volumes.

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