Financial crisis

Question 1

What do loans do? (mortgage = house loan)

Answer 1

Loans create money and lend it to others, if others don’t pay it off it creates debt.

Question 2

Simplified cause of financial crisis

Answer 2

Too many risky loans that create a lot of debt, bankrupt banks, froze transactions brought house prices down as people stopped demanding, fallen house prices meant nothing to pay off debt with, shrank economy

Question 3

‘Too big to fail’?

Answer 3

Bigger banks take more risks, and sense that if fail would be bailed out, when not bailed out brought others down with them