The Deeper Causes of the Financial Crisis – Mortgages Alone Cannot Explain It

The Deeper Causes of the Financial Crisis – Mortgages Alone Cannot Explain It


The losses on U.S. residential mortgage loans are too small to explain the magnitude of the 2008 financial crisis. The total losses, including the losses realized to date and those yet to be realized, should fall in the range of $750 billion to $2 trillion. The full, global magnitude of the crisis is significantly larger – probably in the range of $5 trillion to $15 trillion – depending on the approach for measuring it. This implies that losses on residential mortgage loans cannot have been the main cause of the crisis: they can only have been a trigger that served to unleash the true causes. The failure or near failure of a significant number of major financial firms suggests that high leverage and strong risk appetites were important immediate causes of the crisis. However, explaining the sources of high leverage and strong risk appetites requires probing for deeper causes that developed over a longer period. This article proposes the following deeper causes: securities firms converting from partnerships to corporations, the 30-year trend of deregulation, the quant movement, the spread of risk-taking culture through the financial industry, and globalization.

Complete paper below…



The Deeper Causes of the Financial Crisis – Mortgages Alone Cannot Explain It

3 Responses to “The Deeper Causes of the Financial Crisis – Mortgages Alone Cannot Explain It”
  1. Danelle Hills says:

    Several banks lowered my own credit lines as follows:

    If I had a balance of $ 2500 say, with a credit line of $3000, then my credit line got lowered to $ 2200 or $ 2000 such that I was automatically over the limit already. Then I was charged overlimit fees, which accrued 21% interest, etc. and so it got harder and harder to make the payments on time. I swear I think the banks WANTED everyone to default on the cards.

  2. Sarah says:

    Didn’t we have some expensive wars going on? War on Iraq, war on Afghanistan, war on terrorists, war on civil liberties, etc. I think some of these things are [hugely] expensive, but are rarely mentioned as a direct impact on our economy in “polite” mainstream news analysis. Is it taboo to mention how draining and destructive these horrible engagements have been?

    Whatever you think of Iraq, we destroyed that country, and killed so many people. As we abandon Afghanistan, any number of mistakes have been made, but there is a group of leaders in this country who will never admit mistakes, or will tell us we simply don’t understand.
    Tell that to the middle class who is facing profound misery, including scrambling to find places to live.

  3. Shelly says:

    One of the things they don’t talk about is how before all this started how systematically they started lowering credit lines on most everyone’s credit cards . if you owed $4000 and you had a $10,000 creditline they dropped you to $4500. All that did was stop spending which caused the economy to tank. It was like a domino effect after that point. Once again it points back to the banks for helping cause this mess.

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