%0 Journal Article
%T Searching For Causes Of The Current Financial Crisis: On Risk Underassessment And Ignorance
%A Alexandra HOROBET
%J Review of Economic and Business Studies (REBS)
%D 2010
%I Alexandru Ioan Cuza University of Iasi
%X The paper presents the authorĄ¯s views on one underlying cause of the current financial crisis: the erroneous assessment of risk by market participants. We argue that besides othe r convincing explanations of the causes behind the recent financial tu rmoil such as loose government and central bank policies, the process of market liberalization, investorsĄ¯ appetite for risk and excessive financial modeling, we need to recognize the fact that underassessment of risk by market participants and policy makers is a major cause for the current crises, as for previous ones. This underestimation of risk comes largely as a result of two realities: first, risk magnitude was not entirely known by market participants, due to an interlinking of securities, structures, and derivatives built around the subprime mortgages; second, market participants ignored these risks to a large extent, in a world were access to financial markets was as ea sy as never before.
%K financial crisis
%K risk underestimation
%K subprime mortgages
%U http://www.rebs.ro/articles/pdfs/15.pdf