Impact of US collapse on NSW as yet unknown – Rees

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The full scale of the ongoing US credit crisis and its impact on NSW state and local government finances remains unknown, Premier Nathan Rees says.

Following the overnight collapse of US investment bank Lehman Brothers, councils in NSW have an estimated $400 million in unrealised losses from sub-prime-backed collateral debt obligations.

Media reports suggest several councils are considering suing Lehman Brothers, and may turn to the already cash-strapped state government for help.

Mr Rees said many Australian councils bought triple-A rated Grange Securities, of which Lehman Brothers was a subsidiary.

“We’ve now seen the (collapse) of Lehman Brothers overnight, we’ve seen the sale of major banks at discount prices,” he told reporters in Sydney today.

“The fallout of the sub-prime crisis is clearly not complete. Fiscal rectitude is the order of the day.”

The premier said the government was yet to receive any request for assistance from NSW councils.

“As I understand it we haven’t received formal representations from either the Local Government and Shires Association or the individual councils. That will be a matter for the local government minister to deal with but it’s on our radar obviously,” he said.

When asked about the impact of the US collapse on state finances, Mr Rees said a mini budget due for release in about eight weeks would detail state spending.

“We don’t even know the scale of the loss we’re talking about …” he said.

AAP

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1 COMMENT

  1. I am amazed that this has happened – again! back in the late 70’s nsw councils were caught up in providing deposits to the dodgy nugan hand organization that went belly up. surely the nsw government would have woken up and strengthened their control on investments that are acceptable for local government bodies. I am sure that qld govt does not give local councils any similar mandate! another example of poor governance which will cost the ratepayer/taxpayer more.

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