Cost of the 2007--9 financial crisis

[oldfart]

The Federal Reserve Bank of Dallas has a research paper out estimating the cost of the financial sector collapse. http://dallasfed.org/assets/documents/research/staff/staff1301.pdf

The full costs is estimated at between four and five times annual production in 2007, putting it over $50 trillion. Direct costs alone amount to perhaps half that. The figures are really staggering. I saw estimates for worse case scenarios in 2008--9 that exceeded $10 trillion, and everyone's (econometricians all) reaction to that was shock. That estimate came out of a model that predicted a 40% probability that national income would not recover to 2007 levels within a five-year projection period. Guess what; that is about correct for 2008-2013. Also there are long range projections that show a permanent lowering of long term growth for as far in the future as models will go, I suspect 75+ years.

I remember the reaction on another board in September 2008 when I mentioned the models. Disbelief and fear were the reactions. Surely it couldn't get that bad? Well it did.

 

[TNHarley]

fuckin libs and greedy repubs..
johnson carter clinton frank and those greedy repubs holding back the broker rules
DO U SEE WHERE GREED AND SOCIALISM GETS US?

 

[Rshermr]

The Federal Reserve Bank of Dallas has a research paper out estimating the cost of the financial sector collapse. http://dallasfed.org/assets/documents/research/staff/staff1301.pdf

The full costs is estimated at between four and five times annual production in 2007, putting it over $50 trillion. Direct costs alone amount to perhaps half that. The figures are really staggering. I saw estimates for worse case scenarios in 2008--9 that exceeded $10 trillion, and everyone's (econometricians all) reaction to that was shock. That estimate came out of a model that predicted a 40% probability that national income would not recover to 2007 levels within a five-year projection period. Guess what; that is about correct for 2008-2013. Also there are long range projections that show a permanent lowering of long term growth for as far in the future as models will go, I suspect 75+ years.

I remember the reaction on another board in September 2008 when I mentioned the models. Disbelief and fear were the reactions. Surely it couldn't get that bad? Well it did.

Makes me wonder what would have happened had we taken a true hands of position, and done no bailout and no stimulus. Whatch think??? My guess is full on depression.

 

[Kimura]

The Federal Reserve Bank of Dallas has a research paper out estimating the cost of the financial sector collapse. http://dallasfed.org/assets/documents/research/staff/staff1301.pdf

The full costs is estimated at between four and five times annual production in 2007, putting it over $50 trillion. Direct costs alone amount to perhaps half that. The figures are really staggering. I saw estimates for worse case scenarios in 2008--9 that exceeded $10 trillion, and everyone's (econometricians all) reaction to that was shock. That estimate came out of a model that predicted a 40% probability that national income would not recover to 2007 levels within a five-year projection period. Guess what; that is about correct for 2008-2013. Also there are long range projections that show a permanent lowering of long term growth for as far in the future as models will go, I suspect 75+ years.

I remember the reaction on another board in September 2008 when I mentioned the models. Disbelief and fear were the reactions. Surely it couldn't get that bad? Well it did.

Makes me wonder what would have happened had we taken a true hands of position, and done no bailout and no stimulus. Whatch think??? My guess is full on depression.

We could have handled it like the Swedes in the 90s.

 

[oldfart]

fuckin libs and greedy repubs..
johnson carter clinton frank and those greedy repubs holding back the broker rules
DO U SEE WHERE GREED AND SOCIALISM GETS US?

The only thing socialized in this mess were Wall Street losses, and when Paulson held his famous meeting there was no one in the room from Wall Street who was paid less than $5 million a year.

 

[Rshermr]

fuckin libs and greedy repubs..
johnson carter clinton frank and those greedy repubs holding back the broker rules
DO U SEE WHERE GREED AND SOCIALISM GETS US?

The only thing socialized in this mess were Wall Street losses, and when Paulson held his famous meeting there was no one in the room from Wall Street who was paid less than $5 million a year.

Only in america. I suspect that for the most part, it was WELL over $5M.

 

[oldfart]

Makes me wonder what would have happened had we taken a true hands of position, and done no bailout and no stimulus. Whatch think??? My guess is full on depression.

I've given this some thought and there is a great novel there. A lot hinges on when you start the counterfactual history. Lehman Bros? Bear Stearns? AIG? The initial strategy was to let the firms fail and this was abandoned only when the systemic risk became obvious. There is also a question of breadth of the bailout. AIG did not have to be bailed out at 100%, but if the Fed had not intervened the commercial paper market collapse would have put everyone under.

So if we have some good creative writers out there, the best bet would be for everybody to take a chapter and see what we can come up with!

 

[Auteur]

Makes me wonder what would have happened had we taken a true hands of position, and done no bailout and no stimulus. Whatch think??? My guess is full on depression.

I've given this some thought and there is a great novel there. A lot hinges on when you start the counterfactual history. Lehman Bros? Bear Stearns? AIG? The initial strategy was to let the firms fail and this was abandoned only when the systemic risk became obvious. There is also a question of breadth of the bailout. AIG did not have to be bailed out at 100%, but if the Fed had not intervened the commercial paper market collapse would have put everyone under.

So if we have some good creative writers out there, the best bet would be for everybody to take a chapter and see what we can come up with!

Would it be a crime novel, horror story, or science fiction?

 

[Toro]

Subscribed.

 

[oldfart]

Makes me wonder what would have happened had we taken a true hands of position, and done no bailout and no stimulus. Whatch think??? My guess is full on depression.

I've given this some thought and there is a great novel there. A lot hinges on when you start the counterfactual history. Lehman Bros? Bear Stearns? AIG? The initial strategy was to let the firms fail and this was abandoned only when the systemic risk became obvious. There is also a question of breadth of the bailout. AIG did not have to be bailed out at 100%, but if the Fed had not intervened the commercial paper market collapse would have put everyone under.

So if we have some good creative writers out there, the best bet would be for everybody to take a chapter and see what we can come up with!

Would it be a crime novel, horror story, or science fiction?

A bit of each. We can throw in Elliot Spitzer for the sex.

 

[Rshermr]

I've given this some thought and there is a great novel there. A lot hinges on when you start the counterfactual history. Lehman Bros? Bear Stearns? AIG? The initial strategy was to let the firms fail and this was abandoned only when the systemic risk became obvious. There is also a question of breadth of the bailout. AIG did not have to be bailed out at 100%, but if the Fed had not intervened the commercial paper market collapse would have put everyone under.

So if we have some good creative writers out there, the best bet would be for everybody to take a chapter and see what we can come up with!

Would it be a crime novel, horror story, or science fiction?

A bit of each. We can throw in Elliot Spitzer for the sex.

Hey, maybe you could add in Larry Craig for comical airport bathroom sex.

 

[oldfart]

Would it be a crime novel, horror story, or science fiction?

A bit of each. We can throw in Elliot Spitzer for the sex.

Hey, maybe you could add in Larry Craig for comical airport bathroom sex.

I can see it now: "Chapter 69: Wide Stance at the Mezzanine Tranche"!

 

[Rshermr]

A bit of each. We can throw in Elliot Spitzer for the sex.

Hey, maybe you could add in Larry Craig for comical airport bathroom sex.

I can see it now: "Chapter 69: Wide Stance at the Mezzanine Tranche"!

Damn you oldfart. I just spit coffee all over.

 

[oldfart]

Hey, maybe you could add in Larry Craig for comical airport bathroom sex.

I can see it now: "Chapter 69: Wide Stance at the Mezzanine Tranche"!

Damn you oldfart. I just spit coffee all over.

It's a perfect in-joke. How many posters know what a mezzanine is, much less a mezzanine tranche? Somehow the image of Larry Craig pissing off a balcony seems to fit.

 

[william the wie]

I think you are being wildly optimistic oldfart. If debt service costs are ignored and that goes back to at least pre-WWI and Fisher's automatic stabilizers theory then more balance sheet downturns can be expected. Looking at the data from Europe, the BRICS and Japan, not to mention continuous reductions in projected maximum world population, my money is on another and perhaps bigger meltdown by 2016 with the US continuing to be the world's cleanest dirty shirt.

Projected pipelines in East Africa, Australia, Central Asia, North America, Brazil and the Ukraine means that high cost energy infrastructure projects will be written down. Easily 10-20 T in direct costs.

Automation of unskilled labor will drive down wages but not debt service costs, another 10-20 T of direct write downs in China alone.

Figuring a multiplier of 5 that is 50 T minimum in wealth and income loss.

McKinsey kept their projections proprietary for years but the intercept of US productivity growth and Chinese real wage growth in 2015 combined with its rapidly shrinking labor force fraction has now been published. That has already shifted international investment from China to the US. In March of this year, if memory serves, the US edged past China as the world's biggest recipient of foreign investment according to trend line analysis. And that edge is growing. However if the rest of the world tanks and the US remains the ultimate safe haven that investment will not necessarily result in an increase in employment.

So, again I think you are being wildly optimistic.

 

[PredFan]

Yeah, it's a damn shame that Pelosi and Reid denied Bush's requests 5 times to do something about the banks and the housing bubble. Might have stopped the problem before it started.

 

[Toro]

The cost of the financial crisis was $50.

That's a typo.

 

[AmazonTania]

Subscribed.

I'm also following on Twitter.

 

[oldfart]

I think you are being wildly optimistic oldfart. If debt service costs are ignored and that goes back to at least pre-WWI and Fisher's automatic stabilizers theory then more balance sheet downturns can be expected. Looking at the data from Europe, the BRICS and Japan, not to mention continuous reductions in projected maximum world population, my money is on another and perhaps bigger meltdown by 2016 with the US continuing to be the world's cleanest dirty shirt.

Projected pipelines in East Africa, Australia, Central Asia, North America, Brazil and the Ukraine means that high cost energy infrastructure projects will be written down. Easily 10-20 T in direct costs.

Automation of unskilled labor will drive down wages but not debt service costs, another 10-20 T of direct write downs in China alone.

Figuring a multiplier of 5 that is 50 T minimum in wealth and income loss.

McKinsey kept their projections proprietary for years but the intercept of US productivity growth and Chinese real wage growth in 2015 combined with its rapidly shrinking labor force fraction has now been published. That has already shifted international investment from China to the US. In March of this year, if memory serves, the US edged past China as the world's biggest recipient of foreign investment according to trend line analysis. And that edge is growing. However if the rest of the world tanks and the US remains the ultimate safe haven that investment will not necessarily result in an increase in employment.

So, again I think you are being wildly optimistic.

The figures I started with are from the Dallas Fed research paper and I added some commentary. You may well be right that the worst is yet to come; I hope not, but it's possible. I think very few people have realized how much damage has been done and underestimate what it will take to engineer a true recovery.

The most depressing thing to me is that Americans seem to have accepted the "new normal". I don't see an economic or political mechanism that will reliably put us on a recovery path. Most forcasting models have a five-year horizon. We are nearer to the worst case scenario of the late-2008 model runs than the average projection, and the models looking forward to 2016-7 don't look good (except for CBO which always is too optimistic two or more years out). And we still have not made the changes in financial markets which would prevent another financial collapse. I just have a feeling that we are running out of time to fix financial markets.

 

[Toro]

I think you are being wildly optimistic oldfart. If debt service costs are ignored and that goes back to at least pre-WWI and Fisher's automatic stabilizers theory then more balance sheet downturns can be expected. Looking at the data from Europe, the BRICS and Japan, not to mention continuous reductions in projected maximum world population, my money is on another and perhaps bigger meltdown by 2016 with the US continuing to be the world's cleanest dirty shirt.

Projected pipelines in East Africa, Australia, Central Asia, North America, Brazil and the Ukraine means that high cost energy infrastructure projects will be written down. Easily 10-20 T in direct costs.

Automation of unskilled labor will drive down wages but not debt service costs, another 10-20 T of direct write downs in China alone.

Figuring a multiplier of 5 that is 50 T minimum in wealth and income loss.

McKinsey kept their projections proprietary for years but the intercept of US productivity growth and Chinese real wage growth in 2015 combined with its rapidly shrinking labor force fraction has now been published. That has already shifted international investment from China to the US. In March of this year, if memory serves, the US edged past China as the world's biggest recipient of foreign investment according to trend line analysis. And that edge is growing. However if the rest of the world tanks and the US remains the ultimate safe haven that investment will not necessarily result in an increase in employment.

So, again I think you are being wildly optimistic.

The figures I started with are from the Dallas Fed research paper and I added some commentary. You may well be right that the worst is yet to come; I hope not, but it's possible. I think very few people have realized how much damage has been done and underestimate what it will take to engineer a true recovery.

The most depressing thing to me is that Americans seem to have accepted the "new normal". I don't see an economic or political mechanism that will reliably put us on a recovery path. Most forcasting models have a five-year horizon. We are nearer to the worst case scenario of the late-2008 model runs than the average projection, and the models looking forward to 2016-7 don't look good (except for CBO which always is too optimistic two or more years out). And we still have not made the changes in financial markets which would prevent another financial collapse. I just have a feeling that we are running out of time to fix financial markets.

Why do you think we are nearer to the worst case scenario?