The financial crisis was not caused by simply credit default swaps or, since it is what you really mean, taking too much risk per se. I will grant you that had investment banks not given out sub prime loans than this particular bust would have not occurred the way it did, but to understand a financial panic you have to understand the fundamental processes of production (in a free market). Why is it that these entrepreneurs, who only became successful by being correct more than incorrect about judging the market and consumer valuations, were suddenly all wrong all at once? What led them to all so misjudge to market when they are the very people who are the best at it (which is why they are, or were, in the position they were in)?
Rest of it here.
I humbly request any input on whether or not this was a good explanation.Published in