The Great Recession: It Didn't "Just Happen"

No, contrary to what the bankers might want you to believe, the "Great Recession of 2008 / 2009" didn’t just happen. It was not something that resulted from normal and unavoidable economic conditions. The Great Recession was in fact engineered by the financial industry. And while they (the financial industry "Masters of the Universe") probably didn’t intend for the resulting outcome, they did intentionally pursue the path of greed and recklessness that brought about the meltdown of the U.S. economy.

You see, economic recessions are not all that uncommon. They are a natural part of the economic cycle, and adjust the economy in response to changes in consumer spending and consumption, or increasing or decreasing prices of goods and labor. In many ways, a recession is like re-booting the economy - a fresh startup without all the "bugs" that were bogging-down the system.

A recession is classically defined as two consecutive quarters of negative economic growth. The National Bureau of Economic Research (NBER) defines a recession as a "significant decline in economic activity lasting more than a few months" (see Recession Defined).

On average, the U.S. economy experiences a recession every 5 - 8 years (see Recession History). The magnitude of economic contraction, and the duration of recessionary conditions, determines whether a recession is classified as mild, moderate, or severe. "Normal" recessions are typically mild to moderate in their impact, and are relatively short-lived (5 - 15 months average).

An economic slowdown that doesn’t quite meet the definition of a recession is referred to as a "correction". Corrections tend to occur every 2 - 4 years. It’s all part of the normal economic cycle: A period of accelerating economic growth, followed by a growth spike and plateau, and then a period of economic contraction leading into the next growth phase.


By February / March of 2008, many economists were predicting that an economic correction, or a mild to moderate recession, was on the horizon due to the slowdown in the previously red-hot residential real estate (housing) market, and concerns over a rising level of defaults in so-called "sub-prime" mortgages (Frontline Thoughts; Economist Forecasts). But virtually no one, not even as late as mid-summer 2008, foresaw what was actually going to happen to the economy in September (2008).

That’s because the financial industry had worked very hard to keep hidden the nature and full magnitude of the outlandishly-risky "investments" they had made in the mortgage markets. When the extent of those investments were finally exposed, and the degree to which many of the mortgages underlying those investments were identified as being at extreme risk for default, panic swept the financial industry and within days the entire economy was teetering on the brink of total collapse.

So, what should have been a tolerable, mild to moderate recession, turned into the worst economic calamity since the early days of the Great Depression 80 years ago. The U.S. economy skirted around the abyss, threatening for almost 6 months to fall into complete depression. Only super-human responses by the federal government kept the economy intact at all. All because a relatively small group of greedy financial industry "Masters of the Universe" decided to play craps with the U.S. economy. They gambled, they lost, and we, the American people are paying dearly for their greed, arrogance, and recklessness.

After what they did, you’d think these fallen "Masters of the Universe" would show some shame and penance. But that’s far from the case. They’ve been in complete denial since Day 1. And as the recession has dragged-on, they’ve increasingly taken the position that they’re innocent victims of the economic downturn too (earlier posting: Banks Revise History).

Maybe that denial is the result of their well-ingrained arrogance. Then again, maybe they’re afraid of the public relations consequences of taking responsibility for their actions (it’s hard to ask people to trust you with their money after you’ve just admitted to being reckless and negligent with trillions of dollars). Or maybe, just maybe, they recognize the liability implications - if they admit to any level of responsibility, there’s a good chance that they’re going to be required to compensate both individuals and companies for the financial damages that were incurred - and that would probably put them out of business altogether.

Just don’t forget - this Great Recession didn’t just happen. It was caused by the reckless actions of a small group of greedy, arrogant commercial and investment bankers.


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