Subprime Credit Crisis: Cause, Consequence & Response

Abstract

The 2008 financial crisis had significant impacts on the global economy, leading to the collapse of several large financial institutions, massive government bailouts, and a global recession that lasted for several years. This paper discusses the causes and consequences of the crisis, highlighting the importance of understanding the mechanisms that underlie financial crises and the role that banks and financial institutions play in them. The recent Nobel Prize in Economics, given to the research of systematic risk and the role of banks in financial crises, is also covered in this essay. The crisis was brought on by a number of causes, including loose monetary policy, a housing bubble, and the growing use of sophisticated financial derivatives. The collapse of the subprime mortgage market, the high level of unemployment, and the collapse of many large companies and banks were among the consequences of the crisis. The paper underscores the importance of continued research into the causes and mechanisms of financial crises.