Appropriate financial supervision and regulation are essential to prevent a financial crisis, such as the one that took place from 2007 to 2009, from occurring. To understand the role played by financial regulation and supervision in causing this crisis, we must examine the events that led to it. This essay will briefly examine events in the US economy before and during the crisis to establish the weakness of regulation and supervision. First, financial innovation in the mortgage market has allowed households to be assigned a numerical number, determining the likelihood of them being able to repay their loans. Computers enabled securitization, considered one of the main causes of the financial crisis. It also allowed banks to offer subprime mortgages to borrowers who would not otherwise qualify. This results in the creation of mortgage-backed securities. This financial innovation in the mortgage market is important because weak regulation and supervision of these loans, coupled with the greed of brokers, is leading to a financial crisis. The mortgage...