Discussion Paper 19-01 Anatomy of a Financial Crisis We analyze the financial crisis of 2008-2009 and find four causes of the financial crisis: (1) the aggressive credit tightening by the FOMC from 2004-2006; (2) the proximate cause of the financial crisis was the lowering of lending standards by mortgage originators in 2005-2007; (3) the decline in housing prices starting in 2006 and caused by the credit tightening of the FOMC; (4) the decision to let Lehman Brothers fail in September 2008 which led to a process of exogenous credit tightening which transmitted the panic from financial markets to the economy.
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