How much did the financial crisis cost us? $12.8 trillion, one group says
http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/09/16/how-much-did-the-financial-crisis-cost-us-12-8-trillion-one-group-says/Is it even possible to tally up the total impact of the financial crisis? Better Markets tried to give it a shot and puts the price tag at no less than $12.8 trillion.
Better Markets, a non-profit thats pushing for stricter rules on Wall Street, explains its calculations in a new report: $7.6 trillion is the estimated actual GDP lost between 2008 and 2018what the countrys output would have been had the financial meltdown not occurred, according to data from the Federal Reserve Bank in St. Louis and forecasts from the Congressional Budget Office.
The remaining $5.2 trillion is GDP loss that was avoided, but only because it was prevented by the extraordinarily fiscal and monetary policy actions by the government during the crisis.
The report calls the $12.8 trillion price tag a very conservative figure, as it doesnt include a host of other costs, some of which cant be readily quantified: the conversion of investment banks like Goldman Sachs into bank holding companies that receive full access to federal support for regulated banks and the destruction of human capital through long-term mass unemployment, for example.
<more>
[div class="excerpt" name="cost" id="cost" style="background:#FFFFFF" ]
THE COST OF THE CRISIS
Better Markets today released a Report detailing the enormous costs of the financial and economic crisis that began in 2007 and continues to this day. As detailed in the Report, the cost of that crisis is at least $12.8 trillion as measured conservatively by lost GDP. The Report reviews the costs of the crisis, including the destruction of human capital from long-term unemployment, lost household wealth, foreclosures, government bailouts, emergency spending measures, and the other actions that were necessary to prevent a second Great Depression. In addition to monetary costs, the Report details many costs of the crisis that simply cannot be quantified, including the widespread human suffering that has resulted from the surge in poverty, homelessness, and hunger.
The comprehensive Report released today, entitled The Cost of the Wall Street-Caused Financial Collapse and Ongoing Economic Crisis Is More Than $12.8 Trillion, shows that almost five years after the Great Recession began, America continues to suffer from the many costs of the crisis and will do so for years to come. The worst economy since the Great Depression touches every corner of our country, yet this is the first time anyone has tried to put a total value on the cost of the crisis and the implications of that cost for taxpayers, the country, and financial reform, said Dennis Kelleher, CEO of Better Markets.
Better Markets is releasing this report to coincide with the fourth anniversary of the Lehman Brothers bankruptcy on September 15, 2008, the largest bankruptcy filing in U.S. history. The Report explains that remembering, cataloguing, and understanding the costs of the crisis are essential to highlight the still-urgent need for financial reform, to ensure that another crisisor one even worsecannot happen again, and to hold Wall Street accountable for the financial and economic wreckage that it has inflicted on the country.
Wall Street and its many allies and sympathizers are denying and understating the costs of the crisis, primarily to kill, weaken, or avoid financial reform and re-regulation. All sorts of wild, baseless, and exaggerated claims have been made about the cost of financial reform by Wall Street and its allies. Tellingly, they rarely if ever mention the costs of the crisis to the country or the American people and they, of course, never mention their role in inflicting those costs, said Kelleher. This report thoroughly documents the scope and scale of the costs of the crisis to counter these claims and to promote financial reform, which is desperately needed to protect taxpayers, the financial system, and the economy.
Read the 1 page fact sheet or the full report below....
Cost Of The Crisis.pdf
Cost of the Crisis Fact Sheet.pdf
dkf
(37,305 posts)How was it possible to keep it going?
bhikkhu
(10,715 posts)...and all those internet start-ups made the money they expected to make, and all the proceeds were reinvested, and we had a booming economy instead of a jobless economy through the 2000's.
I bet there's some trillions there that people didn't make either, especially if you project out the rate and volume of IPO's over the twelve years since that never happened?
Bill USA
(6,436 posts)gained in the recovery are compared. The economy and jobs numbers they are using to compute the jobs lost for comparison to the jobs produced in the recovery, is a number inflated by the bubble. But computing the amount of artificial, or phony, inflation of the economy of 2007 gets tricky.
I remember it was reported in 2006-2007 time-frame, that about one fifth of the houses being sold were financed with sub-prime loans. If you wanted to use all the sub-prime loans as the measure of loans that should not have been made then you could say that one fifth of the houseing built at the time was based on fraudulent loans and unsupportable. So you could take the value of 20% of housing consruction and with economic multipliers come up with a figure for the amount of GDP that was based on unsound mortgages and overbuilding. Then there is the estimate of how much extra economic activity outside the housing market was induced by interest rates being held down too low. Add those two estimates together to get an estimated figure for how much the economy was over-inflated. Then you would subtract that estimate from the recorded GDP to get you adjusted GDP for an uninflated economy asof 2007.
[font size="+1"]But....[/font] what if you considered all the money banks poured into financially unsound mortgages PLUS the money banks bet on Credit Default Swaps ---- what if those trillions of dollars had been invested in legitimate business activity - how much would the GDP have been had that money been invested in genuine business enterprises instead of being bet on mortgages, phony and legitimate via CDSs. One could estimate another number for what GDP could have been in 2007. This GDP figure might bring the adjusted GDP figure back up to the GDP figure based on bogus mortgages and bets, placed by Wall Street banks via CDSs, on legitimate and illegitimate mortgages - or it might come out to a greater GDP number.
In the report referred to they indicate there are more costs which they did not include because of the complexity in arriving at a number for them. They might have had to come up with a range of values which complicates things and causes the point being made to get lost in a range of values depending upon assumptions used. Thus, they left these costs out. So, they say that their number of $12.8 Trillion is actually not complete and is therefor actually quite conservative.
from the report (see page 8)...
not only because that number does not include every cost, but also because so much is simply unquantifiable. For example, the ultimate immeasurable cost is not included: preventing the complete collapse of the financial system and a second Great Depression or worse, which undoubtedly would have cost many tens of trillions of dollars more. There are also the many incalculable costs of unprecedented government actions that enabled that outcome: the federal guarantee of the $3.7 trillion money market industry, which stopped a run on those funds and the liquidity crisis in short term funding that it caused; the extraordinary overnight conversion of the two largest investment banks into bank holding companies giving immediate access to all the highly favorable federal bank programs, which prevented their bankruptcy; and, most important, the literally priceless full federal guarantee of the entire financial system in February 2009, which almost certainlyin combination with all the other emergency measuresprevented the full collapse of the financial system and another Great Depression.1
Then there are the enormous unquantifiable costs from the economic wreckage Wall Street caused from one end of our country to the other. For example, unemployment, bankruptcies, foreclosures, and underwater homes have destroyed many neighborhoods and communities across the country, while decimating the tax base of cities, towns, counties, and states. ..."
1 This is not an exaggeration: a second Great Depression was a very real possibility, if not probability. See,
e.g., World Bank: Economy Worse Since Depression, CNNMoney, Mar. 9, 2009, http://money.cnn.com/2009/03/09/
news/international/global_economy_world_bank/ (World Bank says global economy toshrink for the first time
since World War II, dragged down by sharp decline in industry, trade); World Growth. Grinds to Virtual Halt,
IMF Urges Decisive Global Policy Response, IMF Survey online (Jan. 28, 2009), http://www.imf.org/external/pubs/
ft/survey/so/2009/res012809a.htm (World growth is forecast to fall to its lowest level since World War II, with
financial markets remaining under stress and the global economy taking a sharp turn for the worse, sending both
global output and trade plummeting.). See also Paul Krugman, End This Depression Now! (W.W. Norton & Co.)
(2012).