The answer, now widely accepted but clearly not appreciated sufficiently at the time, is that the 2008 crisis was made possible by an extremely fragile financial system in which banks and many other businesses indulged in excessive leverage—too much borrowing—as well as hazardous reliance on short-term funding and negligent risk management, with lax regulatory supervision by the government. That there is wide agreement on the causes of the crisis should not be surprising. It is hardly novel to recognize, for example, that short-term borrowing can be quite precarious during a crisis when lenders become cautious and loans that come due cannot be renewed. This forces the borrowers to sell assets, further depressing asset prices and deepening the collapse, a chain reaction that propels severe crises.
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