1. Who bears the costs of the financial crisis ? Malcolm Sawyer University of Leeds

2. Financial crisis and recession Recession generally starting mid 2008 Financial crises in USA and UK, spreading to many other countries with first effects August/Sept 2007, intensifying Sept/Oct 2008.

3. Financial crisis and recession Assessing costs of financial crisis would require construction a counter-factual Make comparisons between 2008/2010 and 2006 and 2007. A difficulty here : the years up to 2007 carried with them the seeds of the crisis, and many of the factors which fed into the financial crisis may have fed into sustain booming expenditure. Calculations here may overstate the costs of the financial crisis in that there were prior benefits from the factors which then helped to generate the crisis.

4. Costs of financial crisis Laeven and Valencia, 2008, reviewed 42 banking crises from around the world and estimated that: Gross Fiscal costs as share of GDP : 15.7 per cent (ranging 0 to 56.8 per cent) ; net fiscal costs: 13.0 per cent (range 0 to 55.1 per cent) Output (over 4 years) loss as share of GDP : 20.1 per cent ranging from 0 to 97.7 per cent.

5. Output gap 2007200820092010 USA0.9-0.5-4.9-5.4 UK1.90.4-5.4-6.4 France1.80.2-4.1-4.9 Germany2.61.9-5.4-5.7 Japan3.31.3-6.1 Euro area1.80.4-5.5-6.0 OECD1.70.3-5.3-5.8

6. ‘the world economy is projected to shrink by 2.3% this year, or nearly $1tn, a loss of output shared by all citizens, but particularly affecting the rising numbers of the unemployed. If you take into account the fact that the world economy normally grows by more than 2% per year, then the loss of output caused by the recession is almost $2tn - although some of that may be made up in future years.’ (BBC)

7. Potential output effects 2006-082009-112012-17Shortfall 2017 USA2.41.52.04.4 UK2.21.31.75.1 France1.71.21.43.0 Germany1.20.81.11.5 Japan1.00.60.82.2 Euro area1.70.91.34.2 OECD2.11.41.74.0

8. Unemployment rates

9. Unemployment rates (%) malefemaleyouth July 2008July 2009July 2008July 2009July 2008July 2009 EA166.99.38.39.815.419.7 EU276.69.17.49.015.419.8 DK2.86.43.75.47.911.2 DE7.38.37.17.09.611.2 EE7.316.65.610.114.224.1 IE6.915.44.88.812.425.5 EL5.06.211.212.321.924.2 ES10.318.112.919.025.038.4 FR7.39.28.310.419.324.2 LV6.921.16.813.713.029.2 LT6.321.95.411.214.930.9 UK6.28.85.16.515.019.2

10. Unemployment rates Male unemployment rate generally increased more than female rate (three exceptions) Youth unemployment rate has risen faster than total unemployment everywhere Unemployment rate increases lowest in Austria, Netherlands; fastest in three Baltic States, Ireland and Spain

11. Budget deficits/GDP (%) 2007200820092010 USA2.95.912.211.2 UK2.75.512.814.0 France2.73.46.77.9 Germany0.20.13.76.2 Japan2.52.77.08.7 Euro area0.71.95.67.0 OECD1.43.27.78.8

12. Cost of bail-outs BBC reports its own calculations ‘based on IMF data given to G20 finance ministers, shows these countries have spent a total of $10 trillion (£6tn). The UK and US spent the most, with the UK spending far more, 94% of its GDP compared to 25% in the US. … Of course, most of this bail-out money was in the form of guarantees to the banking system, and as that system pulls out of the crisis, governments stand to recover most but not all of that money.’

13. Cost of bail-outs Comparison could be made with Savings and Loans crisis in USA which is estimated to have cost government $150 billion.

14. Cost of bail-outs ‘Almost half the world’s largest 20 banks received direct government investment. …. Overall, the total value of actual and contingent support in North America and Europe rose to over US$14 trillion, equivalent to about 50% of annual GDP in those economies, although that does not equate to losses as in some cases these obligations were offset by holdings of assets’ (Bank of England 2009a, p.6) This equates to over $2000 for every person on the planet

15. Loss of ‘wealth’ ‘the market capitalisation of global equity markets had fallen by US$20.2 trillion. So total losses in financial wealth toward the end of 2009 Q1 were equivalent to around 50% of world GDP’ (Bank of England 2009).

16. Loss of ‘wealth’ ‘The BBC, in conjunction with the Halifax, estimates that in the UK national wealth held by individuals has dropped by £815bn in the past year (comparing end 2007 with end 2008), with a 15% drop in the value of people's homes and a 9% drop in the value of their other financial assets. These figures do subtract the value of debts, such as mortgages, from the overall valuation.’

17. Loss of ‘wealth’ This is a loss of ‘fictional’ wealth and not of ‘real wealth’ Any loss of ‘real wealth’ ? Inequality of wealth may have been reduced in that holdings of monetary assets retain worth

18. Musings on other issues Effects on income inequality Effects on poverty Effects on health

19. Pensions and the financial crisis Some immediate effects on pensions and pensioners: interest rates and the stock market

20. Pensions and the financial crisis Long-term implications of financial crisis for privatisation of pensions Pensions and the casino

21. Savings—investment and budget deficits Will savings be higher and investment lower in the future ? Implications for budget deficit Imposing costs on ourselves