The Building Blocks of the Financial Crisis

Abstract

As the world is now painfully aware, huge losses at major financial institutions have precipitated the worst global financial crisis since World War II. Because of losses created by large exposures to toxic subprime and “near prime” mortgage assets, major investment banks, commercial banks and other firms have failed or been severely weakened. The resulting disruption to financial markets has caused the United States to experience the deepest recession in the postwar period. There have been massive job losses and a severe contraction in output. There is widespread belief that matters could have been worse, and apprehension about the strength of the economic recovery.