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Explain the role of the following factors in the upswing in the financial cycle that preceded the global financial crisis: (a) The implicit state guarantee

Explain the role of the following factors in the upswing in the financial cycle that preceded the global financial crisis: (a) The implicit state guarantee for too-big-to-fail institutions. (b) The assumption the MBSs bundled together in CDOs were not highly correlated. (c) Capital regulation based on risk-weighted assets.

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