In a macroeconomic sense, recessions aren't bad things; they're
adjustments. In a broad sense, they result when inventories have
built up to the point that production has to decrease until the
inventories come down to a reasonable level. The problem is that
when production declines, then demand declines, and then it
takes longer to reduce the inventories. When there are rising
prices on, say, corn, farmers readjust their capacity to grow
more corn. Over time, the supply and demand balance shift, but
people who have grown corn with certain price expectations are
reluctant to take losses. Especially when the incremental
capacity comes at higher average fixed cost. Prices will
eventually go down, but some of the capacity will have to be
shut down and investments written off. Social costs follow, with
dislocated farmers and farm workers. In this particular case, a
bunch of people assumed that residential real estate prices
would continue to rise and markets remain liquid, thereby
assuring value of the collateral