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A Price We Can't Forget: $12.8 Trillion in Losses from the Financial Crisis

Dennis M. Kelleher

One of the key ways Wall Street is trying to kill financial reform is to subject all of the new rules to what it calls “cost-benefit analyses.” This seductively sounding concept is, however, a sham; the industry only wants its costs considered and nothing else. When they say “cost benefit analysis,” they mean a one-sided, biased “industry cost only” analysis. The cost to the country of Wall Street’s reckless trading and investments and the benefit to the country of avoiding another Wall Street caused financial collapse are never mentioned by the industry and its allies. Better Markets has been fighting Wall Street on this in the regulatory agencies as well as the courts.

This Wall Street tactic raises the question of why so much time and energy is spent on worrying about the costs of regulation to the very industry that caused the worst financial crisis since the Great Crash of 1929 and the worst economy since the Great Depression of the 1930s? It is because Wall Street and its many allies have been engaged in a comprehensive misinformation campaign that attempts to refocus the public debate away from the crisis and Wall Street’s role in creating it to the new financial reform law and the rules being put in place to prevent another crisis and protect the American people, taxpayers, investors, and the economy.

To rebut that strategy, Better Markets published the first full and thorough account of the cost of the financial crisis and subsequent economic crisis caused by Wall Street. The report was released on the fourth anniversary of Lehman Brother’s bankruptcy last September. It demonstrated that those costs will amount to more than $12.8 trillion. This number is conservative since the toll of the crisis on everyday Americans can’t be quantified and because so much data on the damage done is still unavailable.

From our report, consider what is quantifiable:

  • The gap between actual and potential GDP is expected to reach $7.6 trillion by 2018.
  • Government deficit spending to respond to the crises and prevent GDP loss from being even greater is estimated at $5.2 trillion. As a result, the estimated total actual and avoided GDP loss from 2008 to 2018 totals more than $12.8 trillion.
  • The unemployment rate skyrocketed to 10.2 percent in October of 2009, representing 15.7 million workers. If under-employed and discouraged workers are counted, the rate jumps to 17.5 percent or 26.9 million Americans at the October 2009 peak.
  • Home values fell 34 percent from their peak in 2006 through 2011, representing $7 trillion in lost homeowner equity. A total of at least 3.7 million homes—and by some accounts 5 million—have been lost to foreclosure since the crisis began.
  • Median family income fell 7.7 percent, from $49,600 to $45,800, during the period from 2007 to 2010, and median family net worth fell 38.8 percent, “erasing almost two decades of accumulated prosperity.”
  • The number of families falling below the poverty line has increased steadily since 2007, rising from 12.5 to 15.1 percent, representing over 46 million individuals deemed poor. “The ranks of America’s poor are on track to climb to levels unseen in nearly half a century.”

For millions of Americans struggling with the economic wreckage caused by the financial collapse, it’s been a painful and interminable four years since Lehman Brother’s collapse. At the same time, Wall Street and its powerful allies have been carrying out a massive project to deny the costs of the crisis and to kill reform intended to prevent another one.

Fighting against Wall Street and for financial reform to protect the American people is a monumental but essential task. The only way to prevent a recurrence of the financial and economic crises is to implement meaningful financial reform. The best and only way to counter industry muscle and ultimately save the reform from defeat is to remember, in comprehensive and vivid terms, the past, present, and future costs of the financial crisis.

Remember that number: $12.8 trillion. That is what is really at stake in financial reform.

This entry is part of the series New Rules for Wall Street, where Demos analysts and members of the Coalition for Sensible Safeguards make the case for what should be on the financial-reform agenda in the next four years. Read all the entries here.