Cause of the financial crisis,

The crises in real estate, banking and credit in the United States had a global reach, affecting a wide range of financial and economic activities and institutions, including the:

Overall tightening of credit with financial institutions making both corporate and consumer credit harder to get;
Financial markets (stock exchanges and derivative markets) that experienced steep declines;
Liquidity problems in equity funds and hedge funds;
Devaluation of the assets underpinning Insurance contracts and pension funds leading to concerns about the ability of these instruments to meet future obligations:
Increased public debt public finance due to the provision of public funds to the financial services industry and other affected industries, and the
Devaluation of some currencies (Icelandic crown, some Eastern Europe and Latin America currencies) and increased currency volatility,
The first symptoms of what is now called the late 2000s recession ensued also in various countries and various industries. The financial crisis, albeit not the only cause among other economic imbalances, was a factor by making borrowing and equity raising harder.


Cause of the financial crisis
The collapse of the $8 trillion bubble in the US housing market helped precipitate this financial crisis. In August 2002 an analyst identified a housing bubble Dean Baker wrote that from 1953 to 1995 house prices had simply tracked inflation, but that when house prices from 1995 onwards were adjusted for inflation they showed a marked increase over and above inflation-based increases. Baker drew the conclusion that a bubble in the US housing market existed and predicted an ensuing crisis. It later proved impossible to convince responsible parties such as the Board of Governors of the Federal Reserve of the need for action.[dubious – discuss]Baker's argument was confirmed with the construction of a data series from 1895 to 1995 by the influential Yale economist Robert Shiller which showed that real house prices had been essentially unchanged over that 100 years.

A common claim during the first weeks of the financial crisis was that the problem was simply caused by reckless, sub-prime lending. However, the sub-prime mortgages were only part of a far more extensive problem affecting the entire $20 trillion US housing market: the sub-prime sector was simply the first place that the collapse of the bubble affecting the housing market showed up.