Financial Crisis
Great liquidity incentives
Facing a calm decade economically and low growth rates in the richest countries, the main central banks of the world started to decrease interest rates. That created a monetary expansion in the following years. Then credit and other financial activities could find a solid environment to succeed.
High trust in credit markets
After almost a decade without any relevant economical problems in the world, and the increasing of the liquidity in financial markets, people became trusty about the economy and about the financial markets. On the other hand, banks also had not been facing problems to provide credit for anyone before the mortgage crisis has come.
It was too easy to get a loan without warranties, to increase financial investments in stock markets, and to be confident in there were not relevant risks to keep doing the same thing unlimitedly. Of course, the bigger the confidence in those financial practices, the bigger are the risks.
Lack of regulation in Banks
Everybody knows the American tendency to allow free markets. Some kind of that can be found in Europe as well. The bank sector is one where the liberalization is evident and relevant. They have too much freedom to decide which policies they will take. When we take a look at the importance of this sector for financing the economy we can deduce they can not take risks of bankruptcy, otherwise the financing for the real economy is threatened.
Specifically, there is not following over the way managers drive their banks. However, it should be controlled, because it is a public interest, not only a private interest.
Exaggerated optimism in financial markets
Considering the great available liquidity in ...