Financial System Riskier, Next Bailout Will Be Costlier, S&P Says

The financial system poses an even greater risk to taxpayers than before the crisis, according to analysts at Standard  Poors. The next rescue could be about a trillion dollars costlier, the credit rating agency warned.SP put policymakers on notice, saying theres “at least a one-in-three” chance that the U.S. government may lose its coveted AAA credit rating. Various risks could lead the agency to downgrade the Treasurys credit worthiness, including policymakers penchant for rescuing bankers and traders from their failures.”The potential for further extraordinary official assistance to large players in the U.S. financial sector poses a negative risk to the governments credit rating,” SP said in its Monday report.But, the agencys analysts warned, “we believe the risks from the U.S. financial sector are higher than we considered them to be before 2008.”Because of the increased risk, SP forecasts the potential initial cost to taxpayers of the next crisis cleanup to approach 34 percent of the nations annual economic output, or gross domestic product. In 2007, the agencys analysts estimated it could cost 26 percent of GDP.Last year, U.S. output neared $14.7 trillion, according to the Commerce Department. By SP’s estimate, that means taxpayers could be hit with $5 trillion in costs in the event of another financial collapse.Experts said that while the cost estimate seems unusually high, theres little dispute that when the next crisis hits, it will not be anticipated — and it will likely hurt the economy more than the last financial crisis.

via Financial System Riskier, Next Bailout Will Be Costlier, SP Says.

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