Credit: Dallas Fed

The Federal Deposit Insurance Corp. says it’s selling $2.4 billion in Citigroup bonds. That represents the last bit of the bank owned by a government agency because of Great Financial Crisis bailout. Washington has already cleared about $13 billion on the Citi bailout from selling a $45 billion investment in Citi preferred stock for $57 billion. The current sale, according to Bloomberg, “would bring the government’s overall profit on the Citi bailout to nearly $15.5 billion.”

But before we start celebrating Washington’s savvy investment in Wall Street, let’s recall the total costs of the financial meltdown. A new report from the Dallas Fed takes its best shot at guesstimating:

The 2007–09 meltdown produced a huge downshift in the path of economic output, consumption and financial wealth. The nation has borne additional costs arising from psychological consequences, skill atrophy from extended unemployment, a reduced set of economic opportunities and increased government intervention in the economy.

Assuming the financial crisis is the root cause of all that dislocation, an estimate of the crisis’ overall cost must be weighed against the potential costs of policies intended to prevent similar episodes in the future. We conservatively estimate the loss of national output as a result of the financial crisis and its aftermath at between $6 trillion and $14 trillion. The high end of this range is equal to nearly one year of U.S. output.Including broader and more difficult-to-quantify measures that reflect the lingering trauma experienced by millions of Americans pushes these costs still higher—possibly to as much as two years’ worth of forgone consumption.

Given this range of estimates, the tepid economic recovery and the collateral damage sustained, it is crucial to implement effective policies that avoid future episodes whose magnitude could exceed even the staggering costs and consequences of the most recent financial crisis

Credit: Dallas Fed

Credit: Dallas Fed

If you include those “broader and more difficult-to-quantify costs” — psychological trauma, loss of subjective well being, reduced future job prospects — we’re talking closer to $30 trillion in losses.

Now the Dallas mentions a variety of causal factors for the financial crisis and Great Recession: “bad bank loans, improper credit ratings, lax regulatory policies and misguided government incentives that encouraged reckless borrowing and lending. … Easy credit standards and abundant financing fueled a boom-period expansion that was followed by an epic bust with enormous negative economic spillover.”

Plenty of blame to go around, right? But the Dallas Fed makes no mention of the Federal Reserve’s behavior in 2008, a passive tightening that may well have turned a modest downturn into a near-depression. As I wrote last month:

Just as the 1929 stock market crash didn’t cause the Great Depression, the housing collapse didn’t cause the Great Recession. In both cases, monetary policy mistakes were the likely proximate and fundamental cause. The role of the Federal Reserve in the Great Depression was the subject of Milton Friedman and Anna Schwartz’s A Monetary History of the United States. The Fed’s role in causing the Great Recession and Financial Crisis is explained in The Great Recession: Market Failure or Policy Failure? by Robert Hetzel. The first book caused a major rethink in the economic profession, so should the second. As Hetzel puts it: “Restrictive monetary policy rather than the deleveraging in financial markets that had begun in August 2007 offers a more direct explanation of the intensification of the recession that began in the summer of 2008.”

Estimated Costs by The Levy Institute