The Global Financial Crisis: Cause and Regulatory Response

Abstract

This paper explores the connections between the 1930s Great Depression and the 2008 Financial Crisis. It also goes into great detail regarding the causation, consequences, and changes that surrounding the 2008 Great Recession. Particularly, the change in federal monetary policy during the early 2000s saw a spike in the amount of loans and mortgages. Accompanied by the positive expectations and aspirations of the investors, the housing market boomed. As a result, financial derivatives of asset-backed securities also flooded the market. In the end, this over-inflation of the housing market and its derived products created a housing bubble, which ultimately led to a catastrophic financial crisis when too high a leverage and inability of borrowers to pay back loans burst this overly-optimistic bubble. Upon the occurrence of this financial crisis, new policies were enacted and acts were set in place. Through interpreting the findings of 2022’s Nobel prize winning economists, individuals and groups alike are able to protect themselves from inevitable financial crises that take place in the future.