What caused the 2008 financial crisis?

When the Queen visited the LSE in November 2008 she asked why nobody had noticed it coming. Each school has its own answer to that too.

• Mainstream

  New Keynesian economics

  Models missed it. The post-crisis view: leverage, a housing bubble and runs on lightly regulated “shadow banks”.

• Heterodox

  Post-Keynesian economics

  Minsky's cycle: stability bred riskier finance until the system collapsed.

• Heterodox

  Austrian school

  Interest rates held too low after 2001 fuelled a housing boom built on bad investments.

• Bridge

  Behavioural economics

  Overconfidence and herding; people extrapolated rising house prices. Robert Shiller warned of a housing bubble in 2005.

• Mainstream

  Neoclassical economics

  Efficient-markets view: prices reflect available information, so bubbles are very hard to identify in advance.

• Bridge

  Institutional economics

  Broken incentives and weak regulation: lenders sold on mortgages they made, and ratings agencies were paid by the issuers they rated.

• Heterodox

  Marxian economics

  Over-accumulation and financialisation, with stagnant wages pushing households into debt.