The 2008 Financial Crisis: Causes, Consequences, and Responses

Abstract

This article discussed the origin, process, and consequences of the subprime mortgage crisis that occurred mainly during 2008, in addition to the further improvement of policies by the American government to prevent the occurrence of a similar crisis in the future. Overall, the subprime mortgage crisis was primarily caused by expansionary monetary policy, lax regulation, and securities such as credit default swaps. Following the collapse of the housing bubble and the resulting turmoil in the credit market, the crisis led to bankruptcy for investment banks and other companies, significant financial losses, recession, unemployment, and a substantial amount of government bailout funds. In response to the crisis, the U.S. government implemented several policies to regulate the financial market and reduce risk for banks. Two of the most well-known policies are the Dodd-Frank Act and Basel III, which aim to regulate the financial market and banking system. These regulatory measures were enacted to enhance transparency, strengthen risk management practices, and foster greater stability in the financial system, marking a pivotal shift in the aftermath of the subprime mortgage crisis.