Subprime Crisis: Causes and Responses

Abstract

Since the Great Depression, the U.S. has had only one more catastrophic economic crisis than the one that began in 2008.The economic crisis not only dealt a decisive blow to the economic development of the United States but also affected most countries in the world, causing substantial financial losses to many countries. The lessons of history can be learned by studying and analyzing historical events. This paper's main goal is to explain the causes of the financial crisis in terms of lax monetary policy, the lending environment, subprime mortgages, and credit default swaps (CDS), as well as to provide examples of the effects of the financial crisis by examining the perceptions and analyses of well-known experts and scholars. Next, this paper analyzes the market and government methods and policies in response to the crisis in terms of several acts of the D-Act housing market, central banks, Basel III-CAR capital adequacy ratio, and the COVID-19 crisis. The reasons for this financial crisis's outbreak and the implications for the market, government, and regulators to be summarized and reflected are explored comprehensively in this paper.