The Crisis: The Relentless Resulting of an Explosive Cycle

Abstract

The aim of this paper is to analyze the causes that led to the subprime crisis. A general analytical framework on the issue of crises is used. On one hand, we base our analysis on the theory of financial cycles and, secondly, on the precepts of political economy. First, it is clear from our analysis of cycles that the optimistic and “sheep-like” behavior on the financial market contributes to the formation of speculative bubbles. Second, although the Federal Reserve (FED) can be singled out as responsible for the subprime crisis, economists have not been able to mobilize existing and well known theoretical economic precepts to prevent this turmoil.