The global financial crisis (GFC) was caused by a combination of factors, including the failure of financial institutions, the collapse of the housing market, and the proliferation of complex financial instruments.
One of the main causes of the GFC was the failure of several large financial institutions, including Lehman Brothers, Bear Stearns, and AIG. These institutions were heavily invested in the housing market and were hit hard by the collapse of the housing bubble in 2007 and 2008. As housing prices fell and defaults increased, these institutions were unable to meet their financial obligations, leading to their failure and the broader financial crisis.
Another major cause of the GFC was the proliferation of complex financial instruments, such as mortgage-backed securities and collateralised debt obligations. These instruments were used to repackage and sell mortgage loans, but they were often opaque and difficult to understand, making it difficult for investors to assess the risks they were taking on. When the housing market collapsed, many of these instruments lost value, leading to significant losses for investors and further exacerbating the crisis.
Overall, the GFC was caused by a combination of factors, including the failure of financial institutions, the collapse of the housing market, and the proliferation of complex financial instruments. These factors came together to create a perfect storm, leading to one of the worst financial crises in history.
