Introduction

What provoked the largest financial crisis since the Great Depression? The answers include a diverse array of immediate and deeper causes in the housing and financial sectors of the U.S. economy. While the recessions initial spark was found in housing, U.S. government policy in addition to careless behavior on the part of both lenders and borrowers, along with poor corporate governance can be linked to the massive subprime loans that ultimately turned into the subprime crisis. Self-interest by subprime lenders and Government Sponsored Entities (Fannie Mae) are also liable for escalating the crisis. Among these factors, here I will mainly discuss three principal causes that have come to my attention; the housing price bubble, poor governmental oversee, and the subprime mortgage-lending boom that it fed.
The Housing Bubble:

From 1980 to 1997 the real price of housing in the United States had remained relatively stable. After controlling for inflation and differences in house size and quality, we still see that the average price of a home in 1997 was only 2% more than the average price one century earlier. This flat trend had ultimately ended beginning in the late 1990’s and early 2000’s. When the housing prices had peaked in 2006, the average price was close to twice the long-term average price from 1980 to 1997. Only six years later did the price return the long-term trend (Shiller Housing Price Index).
The origin of the housing bubble is much similar to prior price bubbles. A real increase in demand caused a gradual rise in price, which soon elevated to a rapid speculative price spike. In the late 1990’s, most Americans who had mutual funds, stocks, or other investments in the stock market had seen their wealth increase significantly. Stocks doubled in value from 1996 to 2000. This was because of the dot com bubble, a separate