Monday, the Business Cycle Dating Committee at the National Bureau of Economic Research (NBER) determined that a U.S. recession is underway and that it began following a December 2007 peak. We predicted it in July 2007. What took them so long?

Our dire predictions indicated that there was an economic storm brewing, with serious consequences, including both recession and potentially, a depression, based on the concomitant consequences of the sub-prime market bubble, which was just then beginning to burst.

We foresaw the impact of large volumes of foreclosures and bankruptcies on the banking industry, credit markets, global markets and industry, warning at the time that without a solid solution, the risks of economic crisis were very high.

Of course, government operates on statistics, where we, as economists and consultants, operate on facts, the two being distinctly unique.

The systemic problems prompted by bad lending, which we noted in 2004, were inevitably to lead to a crisis of faith in the credit systems and banks. We warned, back then, that something should be done to resolve the sub-prime lending process, though in a period where government was inclined to deregulate, rather than to add regulatory controls or even to take severe regulatory actions, nothing whatsoever was done.

As time progressed, the sub-prime bubble grew, as most economic bubbles do, and like a child blowing bubble gum, it invariably will burst when it becomes too inflated.  By 2005, the market had reached its peak, and by 2006 many signs of danger existed, but with a shift that year in Congressional politics, little was done.

We recall that present House Financial Services Chairman Barney Frank (D-MA) and his colleague, Spencer Bachus (R-AL) expressed concern, at the time, for the looming housing problem. Despite their expressions of concern, the Congress was unable at the time to effect any substantive changes or influence the Administration to quickly launch regulatory controls that already existed at that point.

The lack of regulatory action permitted banks to continue on a mad cap lending spree, facilitated by securitization, credit default swaps and a great volume of expendable cash in the hands of investors.

But was there so much cash? We now wonder whether that cash was itself the result of credit, and now that credit is tight, the cash is dissipated, like the air in a bubble that’s burst? 

In July 2007, we began to see a massive number of bad lending decisions, not only in sub-prime, but in prime and commercial mortgages, and particularly business lending, where a shift in the loan process had permitted anyone with real estate as collateral to borrow for a business, whether that business had merit or fair opportunity of success. Little or no regard was being afforded by banks to the ability of a borrower to repay the debt.

We saw this in any number of consulting prospects at the time who sought our advice and consultation on projects that were, without a doubt, ill-conceived. We can honestly state we did not support any project we did not believe could succeed, given the right mix of planning and resources.

By December that year, we published a study conducted between 2005 and 2007 reviewing business lending practices called “Bad Lending - Good Lending” and consequently, published a brochure entitled “Preparing For The Storm”, which warned of impending crises in credit and the necessity for banks to change the lending process.

We started our sojourn through the legislative process in the first week of December 2007, warning members of the House and Senate that a crisis was going to occur, with a market crash around October 10th, the very day it happened. We expressed that without a change in lending practices, and something early to build confidence in the banking and credit systems, a total loss of faith was going to ensue, with the dire consequence of economic depression.

In written communiqués, we expressed the fact that the US was already in recession by December 1st, those communications being issued by December 7th.

We continue to believe and express our grave concerns that there will be no resolution to this crisis without a serious change to the lending process and a very serious regulatory action to reign in those rogue mortgage and loan brokers that place our system at risk, every single day.

Don’t be fooled into believing those people are gone from the markets. Banks and mortgage lenders are continuing their bad practices; simply shifting from sub-prime to FHA backed loans.

How did we notice it and government economists and financial experts miss it? We think the answer lies in statistics. The simple fact is that statistics don’t match the present picture of economic action in the real world. We were, as consultants with a unique economic team at our backs, able to view the conditions in the nation’s Main Streets, seeing what was actually happening to small and mid-sized businesses. That was something government bureaucrats and experts could not see.

Where do we go from here? Stay tuned to this website…