A red warning flag flutters in the wind on the beach of the Promenade Des Anglais as local authorities have

forbidden swimming following a heavy storm, on July 29, 2013 in ice, southeastern !rance" A!P P#$%$ & 'A()*+ #A,#) -Photo credit should read 'A()*+ #A,#)&A!P&.etty /mages0

(MoneyWatch) The term "perfect storm," while by now a journalistic cliche, remains the best metaphor for the 2008 subprime mortgage melt own! The gree of len ers, somnolence of in"estors, years of financial eregulation an a host of other factors blew up into an economic tempest from which, nearly fi"e years to the ay after the #ept! $%, 2008, collapse of &ehman 'rothers spar(e a global financial crisis, the )!#! has yet to reco"er!

*+cept that this storm wasn,t natural in the least, an unpre ictable isaster that coul not ha"e been a"oi e , as some ban( -*.s self/ser"ingly sought to characteri0e the melt own! 1ather, the crash was entirely man/ma e! 2n the wor s of the 3inancial -risis 2n4uiry -ommission, a go"ernment/le panel of e+perts con"ene uring melt own to in"estigate what cause it5
6espite the e+presse "iew of many on Wall #treet an in Washington that the crisis coul not ha"e been foreseen or a"oi e , there were warning signs! The trage y was that they were ignore or iscounte ! There was an e+plosion in ris(y subprime len ing an securiti0ation, an unsustainable rise in housing prices, wi esprea reports of egregious an pre atory len ing practices, ramatic increases in househol mortgage ebt, an e+ponential growth in financial firms, tra ing acti"ities, unregulate eri"ati"es, an short/term "repo" len ing mar(ets, among many other re flags! 7et there was per"asi"e permissi"eness8 little meaningful action was ta(en to 4uell the threats in a timely manner!

7et if the financial crisis ha many stran s, they are not too numerous to count or too complicate to un erstan ! 2n ee , with signs that the ban(ing system remains "ulnerable, the tas( is an urgent one! The following lists nine major causes of the crash Investment banks and commercial banks became one 3or years lea ing up to the 2008 collapse, financial firms an their lobbyists in Washington ha successfully wea(ene (ey pro"isions of "9lass/#teagall," the law passe in the aftermath of the 9reat 6epression that separate commercial ban(s from in"estment ban(s! Then, in $:::, the entire bill was repeale , an there was nothing to stop ban(s, whose eposits were guarantee by the go"ernment "ia the 362-, from i"ing into the (in of ris(y businesses that in"estment ban(s speciali0e in! #uch mergers occurre at the same time that fe eral regulators were seeing their staffs an bu gets cut! .ne e+ample of the eregulatory ethos of the time was then/ ;ice <resi ent =l 9ore,s >ational <erformance 1e"iew, popularly (nown as the 1ein"enting 9o"ernment initiati"e, which pushe regulatory agencies to treat businesses more li(e customers an less li(e in ustries in nee of stringent o"ersight!

blac89ac8 and roulette tables" -Photo by Peter :acdiarmid&. #tan ar @ <oor.put it5 More than ?0 years of eregulation an reliance on self/regulation by financial institutions. e+change listing or reser"e re4uirements! =s a result. which coul ha"e helpe a"oi catastrophe! Recovery from one bubble creates another one 2n an effort to shore up the economy after the ot/com bust in 2000. the 3e eral 1eser"e roppe interest rates to $ percent an (ept them at that le"el for an e+ten e perio ! This cause financial assets // inclu ing real estate an stoc(s // to soar in "alue! The easy money also meant lower interest rates pai on municipal bon s an Treasury bills! That ecline force asset managers to see( higher returns in other (in s of in"estments // such as ris(y mortgage/bac(e securities! The mantra of the ay was. supporte by successi"e a ministrations an -ongresses. boome in the run/up to the crash! = major reason for their popularity // they are unregulate ! This means they ha"e no counter/party isclosure.=s the 3-2. an acti"ely pushe by the powerful financial in ustry at e"ery turn. Moo y. ")!#! real estate "alues ha"e ne"er gone own!" 2n time. 2012 in (ondon.000 s7uare feet of slot machines.hi4s 4ile u4 ne5t to a roulette wheel at %he #i44odrome .(A D 1 J2(+ 133 .s. the ratings firms place a === rating on securities they (new to be jun( Unregulated derivatives The mar(et for eri"ati"es. financial in ustry lobbyists ha"e since wea(ene the propose regulations $ D$ . the three lea ing cre it rating agencies. ) . are all pai to rate securities by the companies selling those securities! To (eep their clients happy an the money rolling in. the eman for higher/yiel ing assets le Wall #treet ban(s // now operating as go"ernment/ insure behemoths with a penchant for rolling the ice // to begin bun ling mortgages into securities that coul be sol on to in"estors! The mortgages that promise the biggest returns were the subprime loans ma e to borrowers least li(ely to be able to repay them! The problem was e+acerbate because most of the mortgages were originate by non/ban(.asino near (eicester 67uare on July 13.s an 3itch. which e+empte them from alrea y la+ ban( regulations! Ratings agencies danced to Wall Street's tune To this ay. financial instruments that allow in"estors to buy a security whose "alue eri"es from another asset. ha strippe away (ey safeguar s.etty /mages0 . eri"ati"es were "alue at three times the global economy! While the 20$0 6o / 3ran( financial reform law was suppose to establish rules an e+changes for tra ing eri"ati"es. insurance giant =29 was able to write A? trillion in eri"ati"es while not (eeping enough money on han to co"er those claims! #hortly before &ehman collapse . champione by former 3e eral 1eser"e chairman =lan 9reenspan an others. )ngland" %he new casino has five floors and 90.

SEC bowed to banks and loosened capital re uirements 2n 200B. they get pai if they ha"e hit their targets. the fi"e rampe up their borrowing. where the borrower. Merrill &ynch. cre it rating an loan/to/"alue were ignore ! -ommercial ban(s. with firms commonly ha"ing only A$ on han for e"ery AB0 they ha borrowe ! 'y 2008." which i not re4uire len ers to "erify borrowers. soon starte compensating salespeople base on how many loans they ma e instea of how goo those loans were! !annie and !reddie $oin the party )ntil the pri"ate non/ban( len ers got into the subprime mar(et. continues to this ay! #assing the bucks <ri"ate/sector len ers lac(e any incenti"e to etermine if the mortgages they originate were any goo ! =fter all. &ehman 'rothers an 'ear #tearns // were allowe to ha"e relati"e to their e4uity! They were allowe unlimite le"erage instea of the $25$ le"erage limit that ha been in place! #oon. income! The result was pre ictable5 'orrowers efaulte . un erwriting stan ar s were gutte an tra itional len ing metrics li(e income.s in ebte ness goes up each month8 an the notorious "liar loans. the #ecurities an *+change -ommission change the rules for how much ebt fi"e Wall #treet ban(s // 9ol man #achs. inclu ing a justable/rate mortgages8 interest/only loans8 negati"e amorti0ation loans. an they on.<00 million" /t wasn=t even 10 months ago when we were tal8ing about the tic8ets that won the biggest lottery 9ac84ot ever.ffice of the -omptroller of the -urrency preempte state laws regulating mortgage cre it an national ban(s! This meant ban(s no longer ha to comply with state anti/pre atory len ing laws! >ational len ers starte selling ris(y loan pro ucts in those states. an foreclosure rates spi(e ! :illions of Americans will be standing in line to buy Powerball tic8ets in ho4e of winning the near1 record 9ac84ot of .t suffer if those in"estments later collapse! That practice. three of those ban(s were gone an the other two only sur"i"e only because of a massi"e go"ernment bailout !eds trump state predatory lending laws =lso in 200B. financial interest! =s a result. and now it=s loo8ing li8e history may re4eat itself" %errell >rown re4orts" E"ecutive pay schemes made gambling look good Wall #treet e+ecuti"es get bonuses on the basis of short/term performance! Citting the right numbers for the 4uarter or the year is li(e hitting the right numbers in the lottery! This gi"es those e+ecuti"es incenti"es to ta(e huge ris(s! 2n short. put in place an guar e by those who gaine from it. a true low/water mar( in financial regulation. they ma e their money by selling mortgages to firms that in turn pac(age them into securities an then sol them to in"estors! 6etermining the 4uality of mortgages wasn. the two 4uasi/ .t in the len ers. the . wanting to get in on the mar(et. Morgan #tanley. an the securiti0ers.

go"ernmental housing agencies. 3annie Mae an 3re ie Mac. primarily because they were still wor(ing to ensure the 4uality of loans! 'y 200D.s when 3annie an 3re ie starte buying the subprime mortgages that ha been securiti0e by the non/ban( originators! They i this in an effort to ma(e more money. guaranteeing an securiti0ing mortgages! Their share of the mar(et roppe precipitously uring the housing bubble. ha been the ominant players in buying. not to try to meet their purporte mission of ma(ing mortgages a"ailable to 4ualifie low/income borrowers! htt43&&www"cbsnews"com&media&lehmans1legacy1what1caused1the1financial1crisis&10& . more than 8B percent of the subprime mortgages were issue by non/ban(s! That.