Causes of the crisis Let me start with an overview of the causes of the financial crisis, giving examples of market and government failures, referring to an excellent analysis by Guillermo de la Dehesa, Chairman of the Centre for Economic Policy Research (bold mine): “The first failure appeared when the U.S. government tried to encourage wider homeownership by households, allowing every American family to be entitled to mortgage loans, regardless of their income level or their ability to pay, thus creating a problem of “adverse selection”.
[…] The second failure occurred in the originated and securitized subprime mortgages market, both in terms of government regulation and supervision. On the one hand, the majority of mortgages were not originated by the banks but by agents and brokers working on commission, who were not regulated and who were only required to obtain an administrative local state permit to sell financial products.