it started in early 2006, when several events regarding the financial system went wrong in the United States of America. The factors that lead to credit crises are complex and have a variable weight. Diamond and Rajan (2009) found that investment misallocation is the immediate cause of credit crisis. In response to the crisis, companies, governments and families have reduced investments and decreased consumption. The Federal Reserve provides adaptable monetary policy to ensure the world does not suffer a deep recession. Low interest rates significantly increase the demand for housing. House prices become cheaper for sale and rent in many countries. The credit crisis initially occurred in the United States due to the financial invocation of the United States. Therefore, there are more buyers with marginal credit quality in the market. The international investor has difficulty holding the home mortgage directly because the dodgy credits that qualify have a higher default rate than a normal conservative investor...... half the paper...... interest free . The company wanted to invest an additional $100 million in mortgage-backed securities and earn 7% interest. So the company borrows a short-term loan for $100 million at 4% interest. The company's leverage is $10 of debt for every $1 of equity. Return on equity would be $3.7 million on $10 million in equity. Therefore, the investor was willing to get a short-term loan in the bank while he would be given a higher premium. Diamond and Rajan (2009) suggest that short-term debt appears cheaper than the future cost of illiquidity and long-term capital. Therefore, a short-term high leverage market becomes more common in the bank capital structure market. While the risk-averse banker is unlikely to bear excessive risk, the costs of illiquidity would be more important. This had forced the market into a heavy capital structure.

Topic > it started in early 2006, when several events regarding the financial system went wrong in the United States of America. The factors that lead to credit crises are complex and have a variable weight. Diamond and Rajan (2009) found that investment misallocation is the immediate cause of credit crisis. In response to the crisis, companies, governments and families have reduced investments and decreased consumption. The Federal Reserve provides adaptable monetary policy to ensure the world does not suffer a deep recession. Low interest rates significantly increase the demand for housing. House prices become cheaper for sale and rent in many countries. The credit crisis initially occurred in the United States due to the financial invocation of the United States. Therefore, there are more buyers with marginal credit quality in the market. The international investor has difficulty holding the home mortgage directly because the dodgy credits that qualify have a higher default rate than a normal conservative investor...... half the paper...... interest free . The company wanted to invest an additional $100 million in mortgage-backed securities and earn 7% interest. So the company borrows a short-term loan for $100 million at 4% interest. The company's leverage is $10 of debt for every $1 of equity. Return on equity would be $3.7 million on $10 million in equity. Therefore, the investor was willing to get a short-term loan in the bank while he would be given a higher premium. Diamond and Rajan (2009) suggest that short-term debt appears cheaper than the future cost of illiquidity and long-term capital. Therefore, a short-term high leverage market becomes more common in the bank capital structure market. While the risk-averse banker is unlikely to bear excessive risk, the costs of illiquidity would be more important. This had forced the market into a heavy capital structure.