The Great Recession of 2007-2009 was caused by various long-term and short-term factors. One of the most important long-term causes was the deregulation of the financial industry, which began in the 1980s and continued through the 1990s and 2000s. This deregulation allowed banks and other financial institutions to engage in risky practices, such as subprime lending and securitization of mortgages, which contributed to the housing bubble and ultimately the financial crisis. Additionally, the Federal Reserve kept interest rates low for an extended period, which encouraged borrowing and contributed to the housing bubble.
Another short-term cause of the financial crisis was the proliferation of complex financial instruments, such as collateralized debt obligations (CDOs) and credit default swaps (CDSs), which were poorly understood by most investors and regulators. These instruments were used to spread risk throughout the financial system, but ultimately contributed to the contagion of the crisis when they began to fail.
The Financial Crisis Inquiry Commission documents provide additional insight into the causes of the financial crisis. For example, the Commission found that the credit rating agencies, such as Moody's and Standard & Poor's, were complicit in the crisis by giving AAA ratings to risky financial instruments. Additionally, the Commission found that the failure of Lehman Brothers in 2008 was a major catalyst for the crisis, as it caused a loss of confidence in the financial system.
Overall, the Great Recession was caused by a combination of long-term and short-term factors, including deregulation, low interest rates, complex financial instruments, and failures of regulation and oversight. The consequences of the financial crisis were severe, including high levels of unemployment, a decline in housing prices, and a loss of confidence in the financial system.