The Crash

The global economic crisis that began in 2007-08 made many people aware of the instability of existing financial systems. The causes of the crisis are hotly debated. It is generally accepted that the sharp increase in sub-prime mortgages, particularly in the US, played a major role. Banks that offered the mortgages sold the debt on to others (as a part of complicated packages called “collaterised debt obligations” or CDOs). Many hedge funds bought them up. But as people began to default on their loans, the value started to fall and banks, hedge funds and others were keen to ditch them as soon as possible. As financial institutions found themselves unable to pay each other, they were running short of money. In countries including the UK, governments bailed out banks with taxpayers’ money. Banks were very reluctant to make loans, causing a “credit crunch”.