Abstract

The subprime crisis of the late 2000s had a profound impact on the global financial system, triggering an economic downturn of unprecedented magnitude. This paper provides a comprehensive analysis of the causes, consequences, and lessons learned from the subprime crisis. The crisis emerged from a combination of factors, including the expansion of subprime mortgage lending, relaxed underwriting standards, and the bursting of the housing bubble. Financial institutions eagerly pursued higher profits by issuing mortgage loans to borrowers with questionable creditworthiness, leading to a surge in loan defaults and foreclosures when the housing market collapsed. The consequences of the crisis were far-reaching. It resulted in widespread financial turmoil, with significant losses incurred by interconnected institutions worldwide. The global economy experienced a severe recession, characterized by high unemployment, declining consumer and investor confidence, and disruptions across various industries. The subprime crisis highlighted critical weaknesses in risk management practices, regulatory oversight, and financial market mechanisms. However, it also served as a catalyst for reform. Policymakers implemented measures to strengthen financial systems, enhance transparency, and improve risk assessment and management. Revisions to regulatory frameworks, stricter stress testing, and reinforced consumer protection measures were among the responses.

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