(MoneyWatch) The term "perfect storm," while by now a journalistic cliche, remains the best metaphor for the 2008 subprime mortgage meltdown. The greed of lenders, somnolence of investors, years of financial deregulation and a host of other factors blew up into an economic tempest from which, nearly five years to the day after the Sept. 15, 2008, collapse of Lehman Brothers sparked a global financial crisis, the U.S. has yet to recover.
Except that this storm wasn't natural in the least, an unpredictable disaster that could not have been avoided, as some bank CEOs self-servingly sought to characterize the meltdown. Rather, the crash was entirely man-made. In the words of the Financial Crisis Inquiry Commission, a government-led panel of experts convened during meltdown to investigate what caused it:
Despite the expressed view of many on Wall Street and in Washington that the crisis could not have been foreseen or avoided, there were warning signs. The tragedy was that they were ignored or discounted. There was an explosion in risky subprime lending and securitization, an unsustainable rise in housing prices, widespread reports of egregious and predatory lending practices, dramatic increases in household mortgage debt, and exponential growth in financial firms' trading activities, unregulated derivatives, and short-term "repo" lending markets, among many other red flags. Yet there was pervasive permissiveness; little meaningful action was taken to quell the threats in a timely manner.
Yet if the financial crisis had many strands, they are not too numerous to count or too complicated to understand. Indeed, with signs that the banking system remains vulnerable, the task is an urgent one. The following lists nine major causes of the crash.