What caused the Great Recession? The simplest explanation is too much debt. Too many first-time homebuyers bought houses they could not afford; too many homeowners used their bubble-inflated home equity like a piggybank; too many consumers maxed out on their credit cards.The business and financial sectors engaged in their own debt binges during the 2000s. Too many companies used debt to buy back stock; too many banks made faulty loans; too many hedge funds used other peoples’ money to speculate in derivatives tied to collateralized debt obligations; and too many private equity firms borrowed to buy out companies.
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