This paper seeks to explain the causes and consequences of the U.S. subprime mortgage crisis, and how this crisis has led to a generalized credit crunch in other financial sectors that ultimately affects the real economy. It postulates that, financial strategies based on market innovations that have heightened, not reduced, systemic risks and financial instability led to the crisis. In addition, the underlying structural causes of the crisis are located in the loose monetary policies of central banks, deregulation, and excess liquidity in financial markets that is a consequence of the kind of economic growth that produces various imbalances.

August 29, 2008.