The Global Economic Crisis

US government policies in the 1970s emphasized deregulation of businesses such as less oversight of activities, less disclosure of information undertaken by banks and financial institutions, investment banks and hedge funds. While the housing and credit markets were building the financial systems grew and became increasingly fragile. Decreasing interest rates by the US Federal Reserve from 1982 on along with the large inflow of foreign funds and easy credit conditions fueled a housing construction boom. Consumers and businesses alike assumed high debt in the form of loans, mortgages, credit cards, auto loans, and more. Banks encouraged home buyers to take out large loans overlooking the subprime and or adjustable interest rates.
As part of the housing and credit boom, financial contracts called (MBS) Mortgage Backed Securities and (CDO) Collateralized Debt Obligations enabled institutions and investors around the world to invest in the booming US housing market, when housing prices declined financial institutions that had borrowed and invested heavily in subprime MBS and CDOs had significant losses. Falling home pricing also caused homes to be worth less than the mortgages increasing foreclosure rates. Foreclosure rate that begin to rise in late 2006 continued to drain consumer wealth and decline the financial strength of banks. Defaults and loses on other loans in the crisis caused by the housing market expanded in other parts of the economy.
The interest rate rise in mid 2007 caused a drop in housing prices. Refinancing became difficult and foreclosures soared. The Global Economic Crisis was caused by a lack of liquidity in the US banking system. Due to the collapse in the US housing market caused by defaults in the subprime and adjustable rate mortgages. Financial institutions and banks assumed large debts and could not support lose when the loans, MBS, CDO defaulted. Impacted by the defaults financial institutions and banks stopped lending, slowing economic activity. The Central Bank provided funds to encourage lending and restore stability in the financial market for consumers and businesses. Governments also bailed out key financial institutions and implemented economic stimulus programs.
In January 2011 The US Financial Crisis Inquiry Commission created to investigate the Global Financial Crisis released its report. Concluding that the crisis was avoidable and caused by: failures in financial regulations, the US Federal Reserve's failure to stem the flow of toxic mortgages, financial institutions taking on to much debt, excessive borrowing and risk by consumers and Wall Street that put the financial system on a collision course. Key policy makers not prepared, lacking a full understanding of the financial system they were supposed to be overseeing and a significant amount of accountability and ethics violations at all levels.