What went wrong. What needs to be done.

The Economy – it’s like getting hit by a truck. In your living room. Nothing you could do to stop it.

If I can stretch the analogy a little more, Wall Street is driving the truck. And the U.S. government is the bartender who got him drunk and sent him out on the street.

So what happened? What can we expect? And what can we do about it?

What Happened?

Think about those chain letters you get: send it on to 10 people and when your name comes to the top you’ll get rich. They work great for the people who start them, then they don’t. The first guys in get rich, everyone else gets hosed.

That’s the stock market for the past decade. Not just one, but three bubbles: dot.com, Enron and now housing. In each case the guys who started it skimmed billions of dollars off the top before the whole thing collapsed.

Wall Street pundits are blaming the lastest collapse on people who bought houses they couldn’t afford. That makes as much sense as saying an avalanche is caused by the last snowflake to fall on it. The snowflake was only the trigger, the cause was the layers of instability that had built up under the snow.

Although housing foreclosures triggered the latest crisis, the cause was huge layers of instability created by 40-1 leverage: you buy a $1 million investment with $25,000 and borrow the rest. A stock or bond that pays 2.5%, pays this leveraged investor 100% return on his money. Of course when the market turns around, a 2.5% decline in his investment wipes out 100% of his capital.

And once again, the Wall Street bankers walked away with the billions they took up front and their golden parachutes. And, once again, shareholders and taxpayers are left picking up the pieces.

Why Do Wall Street’s Problems Affect Us?

The system runs on debt. From the large corporation to the corner store, businesses borrow short-term to meet their payroll or stock their shelves. When the credit markets collapse, businesses can’t borrow and the economy freezes up.

We needed to stop the credit crisis even if it meant rewarding the bad guys and punishing the taxpayer. Think 1929. President Hoover didn’t do anything, counting on the “free market” to solve the credit crunch. The result was a decade-long Depression with unemployment reaching 30%. What the government has done so far with $3 trillion in taxpayer money (probably…hopefully) is prevented another Great Depression, in other words staved off only the very worst of possible outcomes.

So What Can We Expect?

Although it seems like this recession has been going on for a long time (and it has for those of us down in the middle class), it’s probably only just getting started. The fallout from the recent credit crisis and middle class families stretched to their debt limit hasn’t hit yet. It is reasonable to expect the worst recession in the lifetime of any active member – deeper and longer than 1982, for example, or the 1970’s.

So What Do We Do?

Individually: hunker down. Put off discretionary spending, save a little if you can, pay down debt.

As a union: fight for policies that will fight the economic downturn and protect the middle class from its impact.

What policies are those?

Put money in the hands of those who will spend it.

The very best way is government spending on things that will create jobs immediately while serving as investments in our economic future. Spending on developing our transportation systems is a great example. Education is another.

Tax cuts for those who will spend it, like the middle class, is another way to fight recession. Tax cuts for the wealthy are not, as they have more money than they can spend already.

How Do We Stop This From Happening Again?

There is no sure-fire way to stop greed. But the engine for the crisis was a two-decades long push to end all government regulation and let the markets run wild. It was driven by right-wing and Wall Street ideologues, but it captured support from both parties. Never forget that the so-called banking reform that undid the protections passed after the Great Depression was passed during a Democratic Administration (1999).

We need to:

Re-regulate the financial markets, putting limits on leverage (how much people can borrow to buy financial assets) and mandating transparency (every investment is on the books and out in the open).

Reverse the trend to favor corporations and the wealthy over middle class workers. Reverse tax and trade policies that encourage companies to ship jobs overseas. Reverse tax policies that reward investments and punish work.

Pass the Employee Free Choice Act to allow those who want to join a union to do so without fear of being fired. Nothing improves families’ standard of living like belonging to a union.