The 2008 financial crisis cost the U.S. economy at least $12.8 trillion, a new study found -- and that's a "very conservative number," according to the authors.
The study, timed to coincide with the fourth anniversary of the Lehman Brothers bankruptcy, is a direct counter to the banking industry's relentless warnings of the potential costs of new financial regulations.
The cost of letting the banks wreck the global economy again is far, far higher.
The crisis-cost estimate, generated by Better Markets, a non-profit group lobbying for financial reform, is only a measure of actual and potential lost economic growth due to the crisis. It does not include many other costs, including the costs of extraordinary government steps taken to avoid "a second Great Depression." It does not include unquantifiable costs like the "human suffering that accompanies unemployment, foreclosure, homelessness and related damage," the authors noted.
The study also does not include figures related to any damage done to American productivity by long-lasting, widespread unemployment, which is eroding the ability of Americans to earn money and posing a threat to future economic growth.
"Lower growth means, among other things, less innovation and, therefore, less technological progress," the study's authors wrote. "The consequences of such losses to a society are indeterminable, but potentially very far-reaching and long-lasting."
The study mentions, but leaves out of its $12.8 trillion estimate, the $11 trillion or so in household wealth that was vaporized by the crisis and an estimated $8 trillion hole that might be blown in the federal budget deficit between 2008 and 2018 as a result of the crisis.
Banks would like you to know that they are suffering, too, of course. The stock prices of the biggest five U.S. banks have lost more than $500 billion in market value since the crisis began. The industry has been docked more than $2 billion in crisis-related penalties.
And the banks constantly warn that new regulations could disrupt financial markets and slow economic growth. The Better Markets study points to one frequently-cited estimate, that the "Volcker Rule," which prohibits banks from proprietary trading, could cost the bond market $315 billion in "liquidity" on its own.
The banking industry's whiner-in-chief, JPMorgan Chase CEO Jamie Dimon, on Tuesday warned again of the risks of too much reform. Here's DealBook:
The United States, he added, has the "best, widest, deepest and most transparent capital markets in the world." Cautioning against needless reform, Mr. Dimon said, "Let's make sure we keep that before we do a bunch of stupid stuff that destroys that."
The man who just oversaw a $6 billion trading loss on credit derivatives continues to lecture the rest of us against doing a bunch of stupid stuff.
In any event, you can stipulate that Dimon has a point -- there are costs to reform. But it is impossible to argue that these costs are anywhere close to the horrific damage the banks have shown they can do to an economy when they're allowed to do whatever they want to do.
Banks might also quibble with Better Markets' $12.8 trillion figure, which is admittedly a little hard to wrap your head around. One part of the number is easy to understand -- it's the amount of potential gross domestic product that has already been lost due to the crisis and recession. A second part is based on economic models, predicting future lost GDP through 2018. That's obviously squishier, as economic models helped us into this mess in the first place. But together these two components make up $7.6 trillion of the $12.8 trillion cost estimate.
The other $5.2 trillion cost is a measure, again generated by economic models, of how much economic damage we avoided through stimulus packages and Federal Reserve rate cuts and bond-buying and emergency lending and the like. That one's even squishier, because you're hanging a number on a counterfactual.
But given all of the costs this study does not even try to estimate, $12.8 trillion is arguably in the ballpark. And the cost is clearly larger than any costs we might incur by trying to keep banks from causing such damage again.
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Financial crisis, recession cost US $12.8 trillion, report says
Financial crisis to cost $7.6 trillion by 2018
They crashed the economy creating misery for millions, got bailout money that likely went straight into offshore accounts, no one went to jail, markets are now making a killing, no new regulations, business as usual, it is a great time to be a bankster.
Where is the outrage and pitch forks and torches marching on wall street ?
What prompted the banks to wreck the global economy? Fed policy. The new regulations won't change that. The financial industry is simply the agent of destruction, the Frankenstein monster, given its powers and incentives to destroy (and profit) by the Dr. Frankensteins like Greenspan and Bernanke.
It is ==far== more lucrative for a Justice, a Congressman, a Senator, a Commissioner, a (Vice-)President, to be "the Fixer" than it is to enforce the law.
According to the esteemed financial advisor, Rumpelstiltskin, the way to make gobs of money is simply to declare that you have it. Loan $1,000 to someone; now you have $1,000 yourself, in the form of a "security," which you can now sell twenty-five times or more while ignoring any paperwork and documentation requirements. (If asked, mumble something about "I must have lost it," and then quietly make another "lost my suitcase outside your office door" round through the Senate Office Building.)
The only way that this financial "crisis" could actually "cost" $12.8 Trillion is if the United States actually ever =had= "that kind of money" by any means other than what it does: "borrowing" (sic) from itself. The entire notion of a "credit limit" is, of course, a chimera, as is the notion of a "national debt." Money is simply a unit-of-exchange used to facilitate trade ... and our core problem is that "trade" is no longer occurring.
The financial picture that we wring our hands about is Rumpelstiltskin's night-time illusion. Those tulip-bulbs were never what our financial self-swindling made them out to be. They always were good for only two things: planting, or eating like an onion.
Warren Buffett says "price is what you pay, value is what you get". House prices fell, but their value did not. Still just as useful, can live in them just fine. Stocks are for speculation, speculating on housing caused the bubble and crash.
Goldman assembled and aggressively marketing billions of dollars in poor quality mortgage securities called collateralized debt obligations that it bet against and purportedly deceived its investor clients.
In the Hudson deal, Goldman told investors that its interests were “aligned” with theirs, even though Goldman held 100% of the short side of the security. Hudson 1 securities declined in value, Goldman made $1.3 billion in profit at the expense of the clients to which it had sold the securities.
I see this as much more than happenstance folly. Like Enron, greed to the determent of our society.
Ameriquest, Countrywide, Lehman and Bear Sterns went bankrupt, to $0
Goldman was $240 now $95
Morgan Stanley was $73 now $13
BOA was $55 now $9
Speculative borrowers with "no money down" mortgages and home equity loans walked away when house prices fell nationally, for the first time in 70 years. Deadbeat borrowers caused the CDOs to be bad, which caused the credit meltdown and global recession. If you don't pay me back, it's your fault, not mine for lending you the money. Same here: deadbeat borrowers caused the meltdown, not the banks. I was a bank auditor in 1973, and I can tell you: there is no legal or moral responsibility for a lender to verify your credit - it's your responsibility to pay. Credit card companies lend to anyone. Doesn't matter: you borrow it, you pay it back. Mortgages are no different.
Mortgages are a "secured loan". Banks have never cared that much about your credit because it can easily change if you lose your job, get disabled or divorced. People have always been unable to pay mortgages, but they or the bank would just sell and pay off the mortgage, even get a profit. Then house prices fell, and people stopped buying, the banks couldn't sell foreclosed properties, and that caused the meltdown.
The Crash was due to a housing bubble, house prices too high relative to wages. That was caused by overly-low interest rates from Greenspan, as well as loose sub-prime borrowing rules. But low interest rates raise the "spread" for lenders, encourages to make riskier loans. Greenspan is the #1 culprit, according to a survey of economists. He should have raised interest rates, instead marveled at how we were all getting richer because house prices were rising. As if.