No one outside of economists and financial philosophers predicted nor expected a financial crisis during 2008, the same year the Lehman Brothers Holding collapsed. As Americans, we are known to begin pointing fingers as the situation deteriorates and the U.S. State has come to quite a few conclusions as to who is rightfully at fault, although everything that occurs should be considered as a chain cycle rather than specific factors. Three common “narratives” as told to us by the six members of the Financial Crisis Inquiry Commission created by the Congress to investigate the causes of the financial crisis states that the financial crisis was as a result of “poor U.S. policy and supervision” (Hennessey, Holtz-Eakin), Wall Street’s influence in Washington, and having government intervention in the housing market. On the other hand, many economists including John Geanakoplos invented something called “The Leverage Cycle” which quite frankly, can simply explain the downfall of the United States’ financial crisis. The Leverage Cycle focuses on the causes and effects of each economic step and process and the outcome it produces. To start the cycle, banks are required to approve loans and they require collateral as a safety precaution for the debt which on average is the house. Because of the high pricing within the housing market, banks found other ways to receive and stretch collateral, using methods such as “double-duty” and lending against collaterals. Eventually, this leads to banks setting low margins and lending more than the specific amounts of collateral, creating “natural buyers” and causing inefficient markets. As the monetary bank “lowers” the average down payment rate from a staggering 4% (originally 14%), U.S. home prices rises, and the amount of debt rises as well as synthetic collateralized debt. As the United States finally stumbles across what is wrong, they begin to increase the amount required for down payments but little do they realize that it’s become too late, eventually causing our economic collapse. On the contrary, it’s delusional to blame our economic meltdown simply based off the fact that the U.S. and their monetary banks couldn’t regulate their financial system and rates. Even if banks were able to regulate the approved loans that certain individuals and families applied for, it does nothing but soften the blow because banks are unable to accurately measure the ability of taxpayers to pay off their loans, as well the credit quality of investments and mortgages which leads to poor investments for certain banks and companies. Eventually, everything leads to a loss of trust within the United States financial system, causing panic. In a nutshell, our financial crisis occurred because of a chain effect known as “The Leverage Cycle”. The Leverage Cycle demonstrates how each poor decision by different organizations within the U.S. State leads to one another, causing a domino effect.

Works Cited
Thomas, Bill, Keith Hennessey, and Douglas Holtz-Eakin. "What Caused the Financial Crisis?." Wall Street Journal - Eastern Edition 27 Jan. 2011: A20. http://online.wsj.com/article/SB10001424052748704698004576104500524998280.html Whitehouse, Mark. "Crisis Compels Economists To Reach for New Paradigm." Wall Street Journal - Eastern Edition 03 Nov. 2009: A1+.
http://online.wsj.com/article/SB125720159912223873.html