Recession

We are currently in the middle of one of the worst economic recessions of the last half century. Unemployment is too high, inflation is too low, in general the market is down, and maybe most important of all a large portion of the public has lost trust in the economy. Recently people have loved to point fingers, trying desperately to identify a single entity to blame the current economic condition upon. Unfortunately the situation is not that simple, there is no one person or organization responsible. A combination of national disasters, attacks, wars, irresponsible lending, irresponsible borrowing and particularly a misjudgement of the housing market have all lead to our current situation.
Firstly I would like to point out that even with the many bad decisions made concerning the economy in the last twenty years there have been a few things that were totally out of our control, i.e the terrorist attacks of September 11th, and hurricane Katrina. 9/11 essentially forced into a war and the damage along the gulf coast has taken years to be repaired, both of which were and are extremely costly efforts only building upon the already large national debt, as well as placing unwanted pressures on the economy.
Economically the current problems have their roots in the reforms of the early eighties. The inflationary growth from the Reagan years helped to instill a false sense of economic security in average Americans, and I believe helped to create a bubble in the housing market. Throughout this period of prosperity housing values steadily climbed and as the Fed lowered the interest rates at the end of the century providing incentive to purchase and invest in all of the new houses being built in this time of surplus. The American people and banks handled this inherently good situation horribly. Banking on the ever increasing prices of houses, people began to take out mortgages on homes sometimes thousands of dollars above their means. These foolhardy people were enabled by what are known as sub-prime mortgages, or mortgages available to people with poor credit with absurdly low down payments. Banks profited wildly from mortgages issued during this apparent housing boom. Banks bundled all these loans together into what are known as mortgage backed securities and sold these securities to larger investment banks on Wall Street. These banks were only too eager to buy up these securities as long as the housing market continued to grow at it’s dependable rate. This was a recipe for disaster. If housing prices had continued to rise a problem may not have arose, but as we all know nothing can increase forever and when the prices leveled off and began to decline, when the metaphorical bubble burst. Everyone involved was in trouble. A only small drop in the price of the housing market brought everything to the surface. So many people holding sub-prime mortgages defaulted on said mortgages that banks investments in the housing market were crushed, evidence can be seen in banks such as Bear Stearn, Citi Group etc. Further worsening the crisis as people defaulted on payments and banks were unable to make good on mortgage backed securities insurance companies like A.I.G were suddenly in very hot water. They were simply unable to cover all the mortgage backed securities that defaulted and needed 85 billion from the government in order to stay afloat.
With the collapse of these investment giants the everyday American began to feel the effects of the recession. As banks were forced to tighten down on their cash and slow lending, investment of all kinds crippled, and when companies of all kinds have less money they are forced to cut costs, directly leading to the recent spike in unemployment. The country finally felt the consequences of its irresponsible lending and borrowing of the last eight years.