During 2008, the federal government has intervened several times in financial markets to restore confidence, to provide liquidity or capital, or to avoid the collapse of a bankrupt or nearly bankrupt corporation or other entity. Typically, a financial intervention involves transactions between an entity and the Department of the Treasury, the Federal Reserve, or another government agency. The federal assistance may involve direct payments, loans, loan guarantees, or the purchase of financial securities.
Direct payments: In the national accounts, a direct payment from a federal agency to a business to support current production or operations is classified as a subsidy, while a payment associated with the acquisition or disposal of an asset is classified as a capital transfer. Direct payments made to state or local governments are classified as grants or capital transfers.
Loans and purchases of financial securities: Loans and purchases of financial assets are not recorded in the national accounts, but are recorded in the Federal Reserve Board's flow of funds accounts. (If the financial transactions involve foreign residents, they also appear in BEA's international transactions accounts.) These financial transactions are not directly counted in GDP because they involve the exchange of financial claims and liabilities rather than current income and production. Financial transactions, however, may lead to subsequent income flows that are recorded in the national accounts. For example, the holding of financial assets may result in the federal government receiving interest and dividends, which would increase federal current receipts. Any associated capital gains or losses, however, are excluded from the national accounts because they represent a change in the value of an existing asset rather than income from current production.
Beginning in late 2008, the federal government has provided capital in exchange for financial assets at more favorable terms than were available in the private markets. Although purchases of financial assets are not recorded in the national accounts, consistent with the recommendations in the newly updated international guidelines, System of National Accounts 2008, BEA will record a portion of this type of transaction as a capital transfer, calculated as the difference between the actual price paid for the financial asset and an estimate of its market value. In most cases, BEA’s estimate of this capital transfer is based on estimates prepared on a net present value basis by the Office of Financial Stability, a branch of the U.S. Treasury. The recording of a capital transfer in the national accounts does not affect GDP or net government saving, but will reduce net government lending or borrowing.
Administrative costs: Administrative costs incurred by general government agencies associated with implementing financial interventions are included in GDP and are classified as federal consumption expenditures.
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