At one level, the crisis was linked to the inappropriate lending strategies adopted by US banks and mortgage institutions.

At a deeper level, however, the sub-prime problem in the USA, was merely a symptom of the defects and vulnerabilities of the neoliberal capitalism that had taken root in the USA and UK in particular, based on free markets and an inflated and under-regulated financial system. --> need for financial regulation.

At an even deeper level: exposed imperfections. Capitalism can be viewed as inherently unstable and crisis-prone.

- Widespread and unsustainable debt in many developed economies
- paradoxes and pitfalls of deficit reduction
- the possible end of neoliberal globalization
- major redistribution of power in the global economy

Debt reduction, brought about by fiscal retrenchment (reducing public spending or increasing tax levels). This would be catastrophic however, if this is adopted by a large number of economies at the same time.

Leads to economic stagnation and soaring unemployment.