An article by Ann Williams published on Sunday Times dated 21/9/2008 gave a good summary of the 10 reasons for the financial turmoil. The summary:

1. IT BEGAN WITH EASY CREDIT AND A HOUSING BUBBLE
* since mid-90s, easy home loan/credit
* low interest rates
* home prices soared 85% from 1996 to 2006
* bubble created

2. THEN INVESTMENTS GOT TIED TO MORTGAGES
* housing bubble spread to banks through mortgage-linked investment
* Other banks from around the world bought into such mortgage-linked investment

3. MORTGAGES WENT SUB-PRIME
* banks started to make “sub-prime” loans to riskier borrowers, many with no proof of income
* No problem when prices of home were rising
* bubble burst

4. HOUSING BUST LED TO BANK WRITE-DOWNS ANS LOSES
* mortgages defaults and foreclosures shot higher
* values of investment started to fall
* banks started to write down value of mortgage-linked investment

5. AND TURNED INTO A CREDIT CRISIS
* banks desperate to raise fresh capital
* banks tightened on credit as they were scared of lending to each other
* cheap loans began to disappear.

6. LACK OF GOVERNMENT OVERSIGHT
* after deregulation in late 1990s, banks & brokerages were allowed to keep many loss-making investments ”off balance sheet”

7. POOR RISK MANAGEMENT

8. FAILURE OF RATING AGENCIES
* too slow in cutting ratings of banks

9. UNCONTROLLED SHOERT-SELLING
* short-sellers drove down weakened banks faster

10. GREED
* blame it on a culture that gave outsized rewards for success and risk-taking but did not penalise failure.