From Subprime Mortgages to a Global Pandemic: An Assessment of Systemic Risk in the 2008 Financial Crisis and COVID-19

Abstract

The COVID-19 crisis and the 2008 financial crisis are two major global events that have significantly impacted the global economy and society. Although both contributed to the economic downturn to some extent, they were fundamentally not social events of the exact nature. The COVID-19 crisis was caused by a global pandemic that has resulted in business closures and travel restrictions. The 2008 financial crisis, which resulted in widespread financial panic and a credit shortage, was mostly caused by the collapse of the housing market and the accompanying financial catastrophe. This paper first explores what triggered the 2008 financial crisis. The Federal Reserve's loose policy made it extremely easy to borrow during that period, which fueled the subprime loan market and the housing market bubble; the lack of regulation in the market made many financial institutions take excessive risks. This paper then also analyzes government interventions, including the implementation of the Dodd-Frank Act and the introduction of Basel III, to prevent further collapse of the economy. Despite extensive government intervention, the post-crisis recovery has been slow and uneven. The lessons that countries should learn from the crisis strengthen the resilience of the global financial system and prevent similar crises from recurring in the future.