Question

what risk taking behavior may have influenced the recession in 2008?

Answer 1

The speculative risk taking behavior and rewarding of the recklessness, rather than the responsibility was the main factor that led to the financial crisis of 2008 and subsequent recession. Institutions created different types of risky assets such as credit default swap, collateralized debt obligations and people also got involved in expectations of the high return that never materialized. Further, institutions relied on issuing loans to those with poor credit rating and it was a risk to gain higher reward that did not happen and recession of 2008 happened. It was the result of default risk taking behavior. People never paid due to plummeting prices of their housing assets. As a result, the high debt caused default risk and it caused some of the institutions to fall. It led to financial crisis and recession of 2008.

While taking these risks, institutions could cover themselves adequate safe funds that could help them fight with any consequences. But, they also invested those funds by taking speculative risk in the market and they had no other alternative other than the fall. It affected the financial crisis of 2008 and subsequent recession.