What caused the financial crisis
Understand the Problem
The question is asking for the factors and events that led to the financial crisis, which typically refers to the economic downturn of 2007-2008. This includes elements like subprime mortgage lending, financial derivatives, and regulatory failures.
Answer
Falling US house prices and rising borrower defaults.
The financial crisis was primarily caused by falling US house prices and increasing defaults as borrowers were unable to repay their subprime loans.
Answer for screen readers
The financial crisis was primarily caused by falling US house prices and increasing defaults as borrowers were unable to repay their subprime loans.
More Information
The crisis was exacerbated by the packaging and resale of low-quality subprime mortgage loans as financial assets, which led to widespread financial instability.
Tips
A common mistake is oversimplifying the cause by focusing solely on housing prices without considering the role of financial instruments and regulatory failures.
Sources
- The Global Financial Crisis: Causes, Impacts and Responses - Reserve Bank of Australia - rba.gov.au
- The 2008 Financial Crisis Explained - Investopedia - investopedia.com
- 2007–2008 financial crisis - Wikipedia - en.wikipedia.org
