Describe the differences and similarities surrounding the circumstances that caused the financial crisis during the 1980s and the crisis of 2007.

Answer:

Both crises involved risky real-estate lending, declining property values, and losses at financial institutions that affected the wider economy. In the 1980s, savings and loan institutions faced large losses partly because rising interest rates made their long-term, fixed-rate mortgages costly to fund with short-term deposits; deregulation also encouraged some institutions to take greater risks. The 2007 crisis followed a housing bubble and a wave of risky subprime mortgages. Those mortgages were bundled into securities and spread through the financial system, so defaults and falling home prices caused losses at many interconnected institutions. Thus, both crises involved real estate and risky lending, but their main financial mechanisms differed.