Excessive risk-taking in a favourable macroeconomic environment
In the years leading up to the GFC, economic conditions in the United States and other
countries were favourable.A large share of such
risky borrowing was done by investors seeking to make short-term profits by 'flipping'
houses and by 'subprime' borrowers (who have higher default risks, mainly because
their income and wealth are relatively low and/or they have missed loan repayments in
the past).Economic growth was strong and stable, and rates of
inflation, unemployment and interest were relatively low.