If an employer’s income drops but they are unable to reduce wages, it forces them to shed employees. If the shedding of employees is too expensive due to labor contract requirements, it forces the company into bankruptcy and places all their employees’ jobs at risk.

Current contract policy is designed for an economy that is only growing and always inflating. It has no downside flexibility. The result is that when things do turn bad, current labor policy actually amplifies the damage.

In 1929 is was a stock market crash. Stocks had seen an unbelievable run up. People borrowed heavily on their paper gains. Many were greatly overextended on margin accounts. When the market imploded, the source of wealth that they were leveraging to obtain all sorts of other things evaporated. Banks that had lent money for margin trading (basically buying a lot of shares of stock but putting up only a portion of your own money with the bank putting up the rest) and these loans suddenly went “under water”. The banks did not have the reserves to cover these losses and started going broke. Business and industry could not get the loans it needed so at first they began reducing wages. Roosevelt then enacted a law that prevented industry from reducing wages and this resulted in plants closing and the people being put out of work. The worst years of the great depression were in 1932 and 1933, three to four years after the stock market crash.

In 2008 we had experienced a decade long real estate run up. Real estate is bought on “margin” in that you make a small down payment and the bank kicks in the rest. Some loans required no down payment at all. They were 100% on margin. In 2008 the price of real estate collapsed in many areas. People had been using increased home equity to borrow money for all sorts of things. Home “flippers” were keeping the home improvement contractors very busy doing repairs. Home equity loans were keeping them busy with improvements and repairs. People were buying boats, RVs, vacation property, cars, home improvements, etc. with home equity loans.

Now the wealth evaporates and these people are on the hook for hundreds of thousands of dollars more than the property is worth. There is no more home equity. Bank reserves are wiped out as their loan portfolios are now under water. They can not lend to business and industry. Nobody is buying cars, boats, RVs, or getting home improvements done. Banks are failing.

It will probably be at least 2011 to 2012 before the full impact of this recession is felt and all the losses are worked through the system but it might take longer because the government is using the treasury to keep afloat people and companies that should simply go bankrupt and start over. They are delaying the pain and extending the recession.

The Media-Mainstream Dictionary defines

un·ex·pect·ed
Pronunciation: \??n-ik-?spek-t?d\
Function: adjective
Date: circa 1586
expected : foreseen

“Unexpected”

Something that every reasonably intellegent person saw ages ago, and was perfectly prepared to see announced officially.

Something we really wish we did not have to report.

“Unexpected”