The Subprime Crisis: A Systemic Failure in Financial Markets

Abstract

This paper delves into an analysis of the 2008 Financial Crisis, exploring its relevance and influence on the current complex global macroeconomic landscape, including the COVID-19 economy and the Russia-Ukraine conflict. Against the backdrop of frequent uncertainty and fluctuations in the global economy, the recent recognition of the 2022 Economic Nobel Prize emphasizes the importance of studying financial crises. The article begins by examining three key factors that contributed to the 2008 Financial Crisis: the Federal Reserve's monetary policy, subprime mortgages, and credit default swaps. It then explores the far-reaching consequences of the crisis, highlighting specific examples to illustrate its impact. Furthermore, the paper explores the changes implemented in response to the crisis, focusing on two dimensions: the Dodd-Frank Act and Basel III. It discusses the implementation and effects of these regulatory measures in the post-crisis era. Lastly, the paper underscores the significance of the 2008 Financial Crisis and its application to contemporary economic challenges amidst a complex external environment. By drawing connections between past and present crises, this research aims to shed light on potential solutions and inform policy decisions in the face of ongoing economic challenges.