Worst plausible Great Recession

How bad could the Great recession have been (without ASBs)? Could it be butterflied up into a second Great Deprssion?
 
Well, when it comes to whether or not it's a great depression is up to interpretation. I could be long, but I believe a recession is supposed to be either 2 or 3 negative quarters, and a depression is supposed to happen when you have 2 years worth of bad quarters. I could be completely wrong, but if I'm right then we would already be in a depression.

If you believe we are already in a depression, then the banks completely failing would definitely turn this into a great depression. Personally... woops... almost went political there for a moment. I think I'll leave that in the chat forum, or on facebook.

But I digress, without the bailouts things would have been worse off in the short term, whether or not it would have been better off in the long term, that's what I'm leaving out here.
 
I could be completely wrong, but if I'm right then we would already be in a depression.

If I am remembering what my teachers have said about economics correctly, a recession is when the economy shrinks instead of grows, and a depression is a recession where the economy has shrunken more then ten percentage points. The great depression was when the economy shrunk for thirty percentage points.

Having said that, I am not sure all of the dominos have fallen over in this economic mess. China is currently riding on an enormous housing bubble that could burst at any time, and the Euro debt crisis doesn't seem to be improving. Considering how interconnected the world economy is right now, having one of those fall out could cause the other to collapse, causing a further recession that then could mushroom into the great depression 2.0.
 
The POD that ensures this is for the government not to backstop AIG

The stock market was having wild swings, and naked short selling which was bombing the banks and financial services companies.

The key to the puzzle was AIG. AIG had over 1.6 trillion in credit default swaps that they where counter parties to; on top of the horrendous "AAA" paper with their name on it floating in the securities market

If AIG blew, a company whose bonds and swaps where held to the hundreds of billions by foreign governments, pension funds, other banks, insurance companies and money market funds; it would have completely devastated the financial sector

Every single major financial services company would have gone into bankruptcy due to out of control runs on their paper (think what happened to Lehman x 30; and Lehman directly subtracted 660 billion dollars of wealth from the economy)...the banks wouldn't have survived either... without the government assuming the risk on all the mortgage swamps, there would have been zero confidence in them (even in the good banks like Hudson City or JP Morgan) and they would have been oblitered


The POD doesn't have to be difficult, just have Bush and the Pelosi congress come into deadlock about how to handle the bailouts and leave the market hanging in limbo a few extra weeks, thats all the time you need to do epic damage
 
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