The toll

Yesterday the International Monetary Fund (IMF) disclosed its estimate of future bank losses due to the BURSTING of the mortgage bubble. The number: $1.5 trillion. Not exactly chump change. This amount is, however, $600 billion less than its April forecast. The reduction in the estimated losses is due almost entirely to a rise in the value of securities held by banks. Meaning that the estimated losses could still climb higher if securities values fall again.

But, and this truly is the back end of financial institutions and the point of the post, the IMF projects that when all is said and done from the financial crisis that total losses will be approximately $3.4 trillion! And that folks is the toll from unscrupulous, or just plain lazy, financial decision making. Makes me wanna spit! Let’s put that figure of $3.4 BIG ONES in perspective, shall we?

There are approximately 6.78 billion people on the planet currently (source: wikipedia). That puts the amount of losses per global capita at: $500.93. That sounds like a small amount of money, but when you consider that the income per global capita is approximately $8,579 (source: World Bank) then the loss per capita is about 5.8% of total income. While that sounds like a small amount, it’s as if the bankers of the world got together and decided to raise taxes worldwide by 5.8%. Ouch! That is a big figure.

But let’s be realistic here. Most all of that $3.4 trillion loss is being felt in the G-20 countries, not in countries like Burundi where the per capita GDP is $140. The 2009 population of the G-20 countries (actually 19 countries – you learn something new every day) is 4,168,894,000. So that makes the per capital loss in the G-20 $815.56. Ouch! Per capita GDP in the G-20 was $11,142.96 in 2008 (source: Wikipedia), making the percentage loss of income 7.3%.

Another way to look at this is that worldwide total GDP in 2008 was $60,689,812,000,000. In 2008 worldwide GDP growth was 3.1% (source: CIA factbook), or $1.9 trillion. So the loss from the financial crisis of $3.4 trillion has effectively wiped out 2 years worth of worldwide economic growth (3.4 / 1.9 = 1.8, or ~ 2 years). However, it’s not my belief that the losses suffered by banks were actual losses of economy.

The losses, while real in dollar terms, were ephemeral in real economic terms. In other words, that $3.4 trillion was illusory economic growth. Because mortgages and real estate do not make up the entire economy and only a portion of it, this means that many, many years worth of GDP growth had a huge proportion that was unreal and due to extraordinarily cheap money (thank you Central Bankers – NOT!). The mortgage bubble began inflating around 2004 and began bursting in 2007. So approximately 2/3 of economic growth during those years was due to inflation and was bogus. And that ladies and gentlemen is The Toll.

I think I am going to go vomit now!

Jason