Abstract
The 2007-2009 financial crisis that started in the summer of 2007 had its origins in the US housing policies, the subprime mortgage market in particular, and the end of the real estate bubble in the US. Careful consideration of the causes, consequences and policy responses suggest that various factors contributed to the severity of the 2007-08 crisis, and experts disagree about the weights to attach to each in explaining what is now regarded as the most significant economic contraction since the Great Depression. The effectiveness of the various policy responses remains a matter of controversy, too, but one fact is not in dispute: the bailouts and subsidies involved in supporting large financial and non-financial institutions alike have reduced wealth and transferred resources from taxpayers to creditors, and in some cases, to the stockholders and management of those troubled institutions. The problems, and arguably some of the policy responses, may have unintentionally created an adverse feedback from the financial to the real sector of the economy. This paper attempts to provide greater clarity about the main causes of the crisis, the early signs of problems that were brewing, what measures US policy makers took in response to the crisis and its aftermath, and what lessons have been learned.