Unraveling the Subprime Crisis

Abstract

This paper investigates the importance of studying the financial crisis in 2008, especially under current situation of COVID-19 and Ukraine Conflict. The three primary factors that contributed to the financial crisis in 2008 were the Fed's monetary policy, the credit default swaps, the crisis of subprime mortgage crisis. The Fed’s monetary policy was loosen and then the subprime mortgages were induced, which in turn caused the credit default swaps lending to the collapse of the financial system worldwide. There were several severe consequences caused by the financial crisis, including the sharp fall in GDP of both developed and developing countries, breakdown of banks, especially the collapse of Lehman Brothers, decrease in unemployment and the rise of household risk. In order to recover from this crisis, several changes has been proposed, implemented and revised, including the Dobb-Frank Act and Basel III. Overall, the importance of studying and understanding the financial crisis has been addressed effectively in this article in order to better the existing financial system and learn from history.