While it's always tempting to boil things down to one or two root causes, the reality is that financial crisis of 2008-09 was caused by a confluence of dozens of factors. The financial crisis was primarily caused by deregulation in the financial industry that permitted banks to engage in hedge fund trading with derivatives banks then demanded more mortgages to support the profitable sale of these derivatives. With all of the complexities of the housing bubble and the subsequent global financial crisis, it can seem like a web of deceit but it all boils down to one simple actor it wasn't wall street.
The global financial crisis (gfc) or global economic crisis is commonly believed to have begun in july 2007 with the credit crunch, when a loss of confidence by us investors in the value of sub-prime mortgages caused a liquidity crisis. The financial crisis of 2008-09 may seem unique, but it was only the latest in a series of eerily similar crises that have struck the us economy since the country was founded more than 200 years. “we conclude first and foremost that the crisis was avoidable,” declared phil angelides, chairman of the financial crisis inquiry commission no act of god thanks mr chairman the report is weak and inconclusive, with no clear root causes.
In 2005, he pointed out, companies issued five times as much high-quality as subprime debt, but last year “we had as much subprime debt, poor quality-debt issued, as quality debt on the corporate level,” he said, warning “this is the kind of debt that does get defaulted on dramatically in an economic. The global financial crisis from yale university former us secretary of the treasury timothy f geithner and professor andrew metrick survey the causes, events, policy responses, and aftermath of the recent global financial crisis learn. In a narrow sense, the global financial crisis of 2008 was unprecedented it was the result of a range of problems that had built up over time: light regulation of banks, overly complex credit products, tighter cross-border linkages and irrational exuberance in the housing market.
“the financial crisis of 2007 to 2008 occurred because we failed to constrain the financial system’s creation of private credit and money” lord adair turner, speaking as chair of the financial services authority, 6th february, 2013 this process caused the financial crisis.
As market watch's howard gold explains in his profile of four analysts the world should have been listening to: people warned about subprime mortgage loans, derivatives, and too much leverage, but nobody, to my knowledge, said a bursting housing bubble would cause a global crisis that would lead to the demise of venerable financial.
On that note, i want to revisit my take from earlier this year on the cause of the crisis that almost destroyed the global economy with all of the complexities of the housing bubble and the subsequent global financial crisis, it can seem like a web of deceit.
Structural causes of the global financial crisis: a critical assessment of the ‘new financial architecture’ james crotty university of massachusetts, amherst.