Question

Which of these was the immediate cause of the financial crisis of late 2008?

Answer 1

The financial crisis of late 2008 was caused by the failure of unregulated financial assets, including CMOs and CDSs, which were wrongly rated as safe by credit rating agencies. As housing prices fell, banks faced bankruptcy when the value of their mortgage-backed assets decreased.

Step-by-step explanation:

The immediate cause of the financial crisis of late 2008 was the creation and subsequent failure of unregulated financial assets, such as collateralized mortgage obligations (CMOs) and credit default swaps (CDSs). These assets were rated as safe by private credit rating agencies, but their true risk was not accurately assessed. When housing prices fell and people struggled to make mortgage payments, banks faced bankruptcy as the value of their mortgage-backed financial assets plummeted.