Question

What was the relationship between “financialization” and the Great Recession of 2008-09?

Answer 1

There was a deep connection between excessive financialization and the Great recession of 2008-09. The Great Recession was brought on due to the collapse of the housing market and this was because there were too many loans, of questionable credit quality, which was given to customers, who did not have the requisite income levels to possibly pay back the loans.

Now these so called 'sub-prime' loans were packaged into derivatives products on the financial markets and because of the manner that these loans were distributed and securitised, the underlying risks were overlooked by most investors. Thus, due to excessive securitization of products such as the housing mortagage, investors and analysts were unable to decipher the true risks and most of the financial world was not able to take any corrective or preventive action. And when most of the mortgages started going bad, the whole securitization structure collapsed resulting in the great recession.

So clearly due to too much financial engineering, the great recession was brought on the world.