7. Which of the following were NOT a cause of the 2008 financial crisis and recession? (a) Reduction of mortgage underwriting standards. (b) Securitization of sub-standard mortgages. (c) The growth of derivative financial instruments based on the sub-standard mortgages as well as the default-swap derivatives and failure to regulate the market for these derivatives. (d) Deregulation of banking by the Bush Administration.

The objective of the question is to identify which of the given options was not a cause of the 2008 financial crisis and recession.The 2008 financial crisis was a complex event caused by a combination of factors. Let's analyze each option:(a) Reduction of mortgage underwriting standards: This was indeed a cause of the crisis. The reduction in underwriting standards led to a boom in subprime lending, which in turn led to a large number of risky loans being made.(b) Securitization of sub-standard mortgages: This was also a cause of the crisis. The securitization of these risky loans into mortgage-backed securities (MBS) and collateralized debt obligations (CDOs) spread the risk throughout the financial system.(c) The growth of derivative financial instruments based on the sub-standard mortgages as well as the default-swap derivatives and failure to regulate the market for these derivatives: This was another cause of the crisis. The growth of complex financial instruments, such as credit default swaps (CDS), increased the risk in the financial system. The lack of regulation in this market also contributed to the crisis.(d) Deregulation of banking by the Bush Administration: This is a common misconception. While there was significant deregulation in the financial industry during the Bush Administration, it was not a direct cause of the 2008 financial crisis. The deregulation that occurred during this time did contribute to an environment that allowed for risky behavior, but it was not the root cause of the crisis.In summary, the reduction of mortgage underwriting standards, the securitization of sub-standard mortgages, and the growth of derivative financial instruments based on these mortgages were all causes of the 2008 financial crisis. However, the deregulation of banking by the Bush Administration, while contributing to an environment that allowed for risky behavior, was not a direct cause of the crisis.

Answered: 7. Which of the following were NOT a…

Principles of Economics 2e

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Publisher:Steven A. Greenlaw; David Shapiro

Chapter17: Financial Markets

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		(a) Reduction of mortgage underwriting standards.
		(b) Securitization of sub-standard mortgages.
		(c) The growth of derivative financial instruments based on the sub-standard mortgages as well as the default-swap derivatives and failure to regulate the market for these derivatives.
		(d) Deregulation of banking by the Bush Administration.