Governments' contingent liabilities: Fiscal iceberg (Obama's Iceberg)

Economist ^ | 09/;24/09

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Governments' contingent liabilities

Fiscal iceberg

Sep 24th 2009 | WASHINGTON, DC

From The Economist print edition

Guarantees offered during the crisis pose lasting risks to America

THE visible costs of the financial crisis are well known: bank recapitalisations, stimulus spending and shrunken tax revenues. Another set of liabilities—the guarantees thrown up around financial systems a year ago to quell panic and keep credit flowing—has received far less attention. Guarantees are popular because they entail no immediate cost. But they leave the sovereign balance-sheet exposed to lurches in the financial system’s fortunes.

In July the International Monetary Fund estimated that the median advanced economy had announced guarantee programmes worth 16.4% of GDP. The figure was 200% in Ireland, which guaranteed all its banks’ liabilities, 50% in Britain and 34% in the Netherlands. The median bank recapitalisation was only 2.4% of GDP.

At first glance America is making progress withdrawing such guarantees. A backstop for money-market mutual funds expired on September 18th. A Federal Deposit Insurance Corporation (FDIC) guarantee for new bank debt is due to end in October. This week Bank of America said it would pay $425m to end a loss-sharing agreement with the federal government.

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Yep, Obama's Iceberg.

[evets]

Mmm mmm mm.

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Ping!