The Recession
The Recession

Origins of Financial Crisis Start to Reveal Themselves

| by Common Cause
Even though Americans have felt the pinch for over a year now with decreased wages and rising unemployment, the the official declaration of America's economic recession was only recently announced.

The National Bureau of Economic Research said in a statement that it "determined that the decline in economic activity in 2008 met the standard for a recession."

That confirms what economists have long surmised, but analysts have already turned their attention to how severe the downturn will be and when the economy will begin to recover. New economic data today indicated that the downturn continues to be worse than expected.

This, of course, continued to stifle confidence in the market and has kept America headed down a path of economic uncertainty. However, there is an element to this economic crisis that is becoming more certain; its origins.

Catering to interests from financial and banking industry lobbyists, the Bush administration and members of congress feigned warnings that the massive deregulation of increasingly risky credit schemes would wreak havoc on the economy.

Bowing to aggressive lobbying -- along with assurances from banks that the troubled mortgages were OK -- regulators delayed action for nearly one year. By the time new rules were released late in 2006, the toughest of the proposed provisions were gone and the meltdown was under way.

Deregulating the financial markets - making way for the highly profitable rise of sub-prime loans and credit default swaps - most certainly produced record profits for Wall Street CEOs. However, such recklessness and greed has not only devastated Main Street but is now destroying the solvency and liquidity of the financial industry.

Such an addiction to profit, no matter the consequence, has infected the the private financial sector and has also influenced the public sector that was supposed to regulate and temper the dangers of short-sighted self-interest and greed.

To read more economic analysis from Common Cause, click here.