The preconditioning for the financial crisis were complex and multi-causal. Almost two decades prior, the U.S. Congress had passed legislation encouraging financing for affordable housing. However, in 1999, parts of the Glass-Steagall legislation, which had been adopted in 1933, were repealed, permitting financial institutions to commingle their commercial (risk-averse) and proprietary trading (risk-taking) operations. Arguably the largest contributor to the conditions necessary for financial collapse was the rapid development in predatory financial products which targeted low-income, low-information homebuyers who largely belonged to racial minorities. This market development went unattended by regulators and thus caught the U.S. government by surprise.
What caused the 2007-2008 financial crisis?
Arguably the largest contributor to the conditions necessary for the financial collapse was the rapid development of predatory financial products which targeted low-income, low-information homebuyers who largely belonged to racial minorities.