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Stephen Long offers detail on the IMF report -

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Reporter: Stephen Long and Tony Jones

TONY JONES, PRESENTER: The International Monetary Fund has tonight issued a disturbing new
assessment of the world's financial system. It says total write-downs stemming from the crisis
could exceed US$4 trillion by next year and banking problems could continue to undermine the world

Well joining us now in the studio with more details is our economics correspondent Stephen Long.

Stephen, if this report has revealed a $4 trillion black hole, what's that going to do to the flow
of credit?

STEPHEN LONG, ECONOMICS CORRESPONDENT: Well it kills it, Tony, and the IMF is warning that we could
see a further slowing of credit and it could even turn negative from the low levels we've seen and
not recover for years. They're describing this as a slow and painful process of debt deleveraging
which could cause further contractions in the global economy. And if you look over a period of -
relatively short period of time, there's been a ratcheting upwards of the estimates on these
write-downs, from $1.4 trillion in the US alone to $2.2 trillion to $2.7 trillion now for the US,
and $4 trillion in the mature economies. That doesn't even include the emerging economies.

TONY JONES: This is so puzzling because we've been hearing from Ben Bernanke about the "green
shoots of hope" in the economy, and aren't the banks meant to be recovering. I mean, Goldman Sachs,
Citigroup, JP Morgan all reported profits. Does that show up in these reports?

STEPHEN LONG: Not at all, and the IMF, in fact, is saying that banks in America, the UK and Europe
will need a total of a trillion dollars more to recapitalise to basically put themselves in a
position that they were in before this crisis hit. And a trillion dollars is big money, really. I
mean, we hear some big figures bandied about, but that shows still a yawning gap that the private
sector is very, very unlikely to fill.

TONY JONES: That means governments again, doesn't it? I mean, is there another trillion dollars
available? Can governments get it? Will the Americans print it up? How does it work?

STEPHEN LONG: Well, one of the issues that they're warning about, Tony, in this report is a
political backlash from the public because of perceived abuses of taxpayer money. Now AIG is the
big example in the US - the classic example, perhaps. The warning that that may put limits on what
governments are able to do - do what the IMF says they need to do. But also possibly limits to more
fiscal stimulus. They talk about, basically, a collision emerging between fiscal stimulus,
open-ended bank support packages and the long-term costs of ageing populations, which could mean
that we have a situation where even Western governments face unsustainable debt burdens as the
financial risks are transferred from the private sector to the public sector and the taxpayer picks
up the bill.

TONY JONES: Anything specifically about the Australian stimulus packages that you've come across so
far? I notice this report's only just literally being released as we speak.

STEPHEN LONG: So far, I haven't yet got to anything specific about Australia, but you get a real
sense that there is a bit of a push and shove towards the United States. They talk about the need
possibly to nationalise banks, to have government ownership. And clearly those warnings, one would
assume, pertain very much to countries like America and Britain, which haven't really funded their
ageing populations either for healthcare or retirement. Some of the countries of Europe as well.

TONY JONES: OK. Stephen Long, thanks for that. Thanks for joining us.

STEPHEN LONG: You're very welcome.