The Recession

[Mike]

I’m curious whether we can initiate this thread by answering a couple questions in an objective way. When did the current recession start? What were the primary causes—in your opinion? (Without reference to so-called "expert" opinion I'm interested in what average people like us think.)

In my own opinion a decades-long and ever-growing reliance upon deregulation created an attitude of recklessness on the part of large business (banks, investment firms, insurance companies) and consumer-borrowers. Over the same years both the executive and legislative branches were complicit by failing to pay attention to the warning signs and the consequences of ignoring regulatory safeguards against foolish financial and business practices. The economic tremors were evident even prior to 2000 and the resultant economic bubble ruptured in 2007; in fourth quarter 2008 the burst became evident and recession was declared.

[W.E.B. Du Bois]

I generally agree with the above. I believe the immediate causes of the recession were entirely financial: they were all based upon bad loans to home-buyers and consumers in general. In a lot of ways this is similar to the Great Depression which was caused by people making bad investments because of this attitude of economic overconfidence and that things would never slow down from "the Roaring Twenties." The logic was that the economy would just go up and up and up, so anything you invest in is bound to succeed....isn't it?

So Wall Street and the banks got us into this mess by just giving loans to everybody. Loan for a house, car, credit card, no it doesn't matter that your disposable income won't even cover the finance charges for the loan, just take the money anyway. This reckless lending was enabled by the invention of derivatives, or slicing up your promise to repay the money into little pieces, doing the same thing to the promises of other people to repay their loans and then packaging them together into a package, which was then sold like it was a share in the stock market. Thus bad loans were rationalized and thus enabled, by just spreading the bad loans around. A ton of bad loans in the system apparently brought down the system like a house of cards, or a house built in sand (you can choose your own analogy).

Also, I read an article (forgot the source), but it said that the managing style of Wall Street changed. Wall Street began to look on the sub-prime market (people who couldn't afford what they wanted to buy) as an untapped market. The people who wanted to make risky loans were rewarded, while it seems that caution became synonymous with unprofitable or meek.

I've only really done some kind of research on the recent crash, so I can't comment on the crashes that came several years before it. While I believe the statistics say that the recession began in 2007, by my theory it started with the collapse of Lehman Brothers in 2008. Perhaps the stock market foresaw this and began a retreat in 2007.