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Explain the 2008 global financial crisis and its antecedents and why this risk could not be...

Explain the 2008 global financial crisis and its antecedents and why this risk could not be diversified away.

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The global financial crisis was firstly caused by deregulation in the financial industry. That permitted banks to engage in hedge fund trading with derivatives. After that Banks demanded more mortgages to support the profitable sale of these derivatives. They created interest-only loans that became affordable to subprime borrowers.Housing prices started falling as supply outpaced demand. That trapped homeowners who couldn't afford the payments, but couldn't sell their house. When the values of the derivatives crumbled, banks stopped lending to each other. That created the financial crisis that led to the Great Recession.

Rahul Sunny answered 2 years ago
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