HappySqurriel on 17 August 2010
Economic downturns are the result of a disproportionate investment in a particular segment of the economy; and the downturn itself can be seen as a rebalancing of the economy. Downturns are often complicated/worsened if the over investment in a segment of the economy is financed through debt; and worsened further if basic rules of credit worthiness is not followed.
Basically, when there was too high of an investment in tech stocks we had the dot-com bubble and when the bubble burst there was a downturn. Had investors (in general) been investing on margin the downturn would have been worse; and had investors been able to leverage up their investments with a 5% margin requirement the downturn would have been worse than the great depression.
