Surviving The Recession: Tips From The Experienced

To paraphrase Chauncey Gardener, a very intuitive man, recessions are simply another cycle in our ... More economy.
America ― and perhaps the entire world ― seems to be on the brink of another recession. This should not come as a particular surprise to anybody. An economic bubble was created by the combination of a flood of cheap money during the pandemic and then pent-up post-pandemic spending. This particular bubble seems to have been popped by the recent tariff wars. Busts come in cycles and the last true economic bust was in 2008 so we were overdue anyway.
The purpose of this article is not, however, to examine how or why a recession arose but rather to talk about how to survive it. In my law career, I’ve been through several busts: The aftermath of the Savings & Loan crash of the 1980s, the combination of the bust in 2000 and the 2001 terrorist attacks, and then of course the 2008 debt financing crash. While all of these busts had their peculiarities, from a creditor-debtor standpoint they were all about the same. Wash. Rinse. Repeat. So here is some friendly advice for how folks should deal with them.
Hope Is Not An Option
The first piece of advice is that “hope is not an option”. Whenever there is a bust, there is always hope that the bust will be short and things will return to boom pretty quickly. Where this manifests itself with business owners and investors is that they may have a deal going on that will be underwater during the bust, but the potential of the deal is so good that they don’t want to let go of it.
For instance, real estate developers (the folks who inevitably cleaned out the most during a bust) will have some dirt project going on that will eventually make them a lot of money, but in the meantime they have to carry a lot of leverage on the deal. The prudent thing to do when a bust arises is to get rid of that project as quickly as possible and with as little pain as possible, yet blind hope will keep them throwing money good money into what is quickly becoming a bad money black hole. With this mentality, they will almost inevitably ride the deal all the way down to where it is finally thrown into bankruptcy and they lose everything related to the deal (and more if they have given personal guarantees, discussed more further below).
Stated a little differently, when times are good then it is often a good wager to bet today’s investment against tomorrow’s profits. When times are bad, however, the smart bet is that taking a small loss today is better than taking a bigger loss tomorrow. The folks who survive busts are those who see early that the economic winds are shifting and are able to unload their potentially sour investments quickly, before the market craters entirely and then they can’t unload at all. The folks who get killed are those who hope that things will turn around quickly, but really don’t have a Plan B if it doesn’t ― or they wait too late and then have to sell off at distress prices.