DEMOCRACY would be at risk if the public were called on for a second bailout of the financial industry, the head of the International Monetary Fund warned yesterday.<br /><br />Dominique Strauss-Kahn said the “man in the street” would not tolerate a bailout of the sector if another global crisis were to blow up in five year’s time.<br /><br />“The political reaction will be very strong, putting some democracies at risk,” he told a group of business leaders at the CBI annual conference yesterday.<br /><br />He added that while the global economy had made remarkable progress over the year and was on the cusp of recovery it remained “highly vulnerable” to shocks.<br /><br />“The major advanced economies in particular remain fragile, still dependent on policy support,” he said. <br /><br />It was too early for governments to start winding down their fiscal stimulus packages, he added. <br /><br />“I think it is still too early for a general exit,” he said. “Exit should instead await a sustained recovery in private demand, as well as entrenched financial stability – a key litmus test.<br /><br />“We recommend erring on the side of caution, as exiting too early is costlier than exiting too late.”<br /><br />Global banks have so far only revealed half their losses from the crisis, he added.<br /><br />“Probably a little more has been disclosed in the US and a little less in Europe,” he said.<br /><br />And Strauss-Kahn backtracked on his opposition to a tax on the transactions of global finance. He told the CBI that the so-called Tobin tax was interesting and should be considered.<br /><br />“Can the tax system be used to further the legitimate goals of fairness and equity in this area?” he asked. “There are a number of ways to think about this, and we will look at it from various angles and consider all proposals.”<br /><br />Lord Turner, the chairman of the Financial Services Authority (FSA), told the conference that regulatory reform needs to be combined with macro prudential tools to safeguard against future financial instability.<br /><br />Low and stable inflation does not by itself guard against the “dangers of volatile credit supply”, he said.