Lessons Learned from the 2008 Financial Crisis: A Reflective Analysis

Abstract

This article aims to analyze the 2008 financial crisis from the perspective of the awarding of the Nobel Prize in Economics in 2022, awarded to economists Douglas W. Diamond, Philip H. Dybvig and Ben S. Bernanke. The importance of the role of banking during a period of recession is highlighted. The idea is to understand and address this crisis, based on the findings of the laureates, who demonstrated how crucial it is to stop widespread bank failures. This analysis underscores that the lessons learned from the subprime mortgage crisis  are critical to ensuring global economic stability, as well as guiding regulations in an increasingly interconnected world. Because  the subprime crisis and the  bankruptcy of Lehman Brothers marked the collapse, resulting in a global banking crisis, the article begins with an approach to the crisis, to explore the antecedents and causes that lead to the creation of the housing bubble. To counter the global bank collapse and failure, regulations such as the Dodd-Frank Act and Basel III were implemented, along with increased government spending and near-zero interest rates. Regulatory negligence and risks not considered by banks were key factors. Finally, the monetary policy response to the pandemic-induced recession during 2020 is briefly examined. Then as the Federal Reserve and other central banks again turned to near-zero interest rates and quantitative easing to boost the economy.