S t a f f P A P E R S
F e d e r a l R e s e r v e B a n k o f D a l l a s
No. 20, July 2013
How Bad Was It? The Costs and Consequencesof the 2007–09 Financial Crisis
Senior Research Analyst
Senior Economic Analyst andSpecial Assistant to the President
Executive Vice President andDirector of Research
The 2007–09 …nancial crisis was associated with a huge loss of economic output and …nancial wealth,psychological consequences and skill atrophy from extended unemployment, an increase in governmentintervention, and other signi…cant costs. Assuming the …nancial crisis is to blame for these associated ills,an estimate of its cost is needed to weigh against the cost of policies intended to prevent similar episodes. Weconservatively estimate that 40 to 90 percent of one year’s output ($6 trillion to $14 trillion, the equivalentof $50,000 to $120,000 for every U.S. household) was foregone due to the 2007–09 recession. We also provideseveral alternative measures of lost consumption, national trauma, and other negative consequences of theworst recession since the 1930s. This more comprehensive evaluation of factors suggests that what the U.S.gave up as a result of the crisis is likely greater than the value of one year’s output.
Financial crisis, Great Recession, output loss
The views expressed in this article are those of the authors and do not necessarily re‡ect the views of the Federal Reserve Bankof Dallas or the Federal Reserve System.