The financial system poses an even greater risk to taxpayers than before the crisis, according to analysts at Standard Poor’s. The next rescue could be about a trillion dollars costlier, the credit rating agency warned.
SP put policymakers on notice, saying there’s “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 Treasury’s 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 government’s credit rating,” SP said in its Monday report.
But, the agency’s 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 nation’s annual economic output, or gross domestic product. In 2007, the agency’s 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, there’s 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.