ROOT CAUSES OF THE FINANCIAL CRISIS: A PRIMER
Two critical and related factors were reported to create the current crisis. “First, profligate lending which allowed many people to buy overpriced properties that they could not, in reality, afford especially real estates. Second, the existence of excessive land use regulation which helped drive prices up in many of the most impacted markets.” Namely, the increase in real estate mortgage caused the rapid increasing demand in real estate and which eventually in turn led to a rapid rise in house price. As many people couldn’t actually afford the house, the real estate soon collapsed in value. The crisis started in the home mortgage market, especially the market for so-called “subprime” mortgages, and is now spreading beyond subprime to commercial real estate, corporate junk bonds, and other forms of debt.
