Part 1
There were political factors that appeared as a result of structural deficiencies in the educational system in the United States as it was not symmetrical ( Thakor, 2015) . According to some politicians, some courses allowed some people to have an advantage over the others when it came to credit acquisition. Politicians decided to step in forcing banks to extend lending terms ( Thakor, 2015) . That in turn pushed commodity prices higher and a crisis emerged. In the end, banks could not cope which led to hardships in making rollovers ( Thakor, 2015) . That subsequently led to acquisitions and mergers as institutions tried to remain afloat.
Financial innovations also played a role. Dues to technological advancements, there was an introduction of new trading items and securities ( Thakor, 2015) . Although they lacked enough history to inspire confidence, people were drawn into them. However, differences ensued from the competition and people started losing faith in them. They were not sure who to trust and that led to a cascade of events that made is even harder to fund them ( Thakor, 2015) . As such, financial markets were left unstable.
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Part 2
There was an increase in household debts which meant that financial institutions were unable to recover in time and stabilize ( Thakor, 2015) .
Corporate investment decreased as jobs were lost and household consumption went down ( Thakor, 2015) . The focus was shifted from a firm’s ability to access loans to bank loans access to households.
As unemployed proved rampant, people stopped investing and saving ( Thakor, 2015) . As such, financial institutions that relied on people being employed were left running on deficits as they didn’t have enough inputs to remain significant.
Part 3
Many of the factors leading to the crisis buildup can be directly connected to the business. Differences between politicians and the Federal Reserve’s ignorance to take advice can be said to be the main drives that fueled the crisis. I would have focused on issuing short-term loans and mortgages to allow time for recovery. As the signs were already there, I would have released hedge funds to cater for any calamity that would be apparent.
References
Thakor, A. V. (2015). The financial crisis of 2007–2009: why did it happen and what did we
learn?. The Review of Corporate Finance Studies , 4 (2), 155-205.
