The 2008 Financial Crisis explained: why did the global economy crash and what are its repercussions? The 2008 financial crisis is referred to as the worst economic disaster since the Great Depression. This led to the Great Recession, which led to falling housing prices and rapid increases in unemployment. Some of the effects and the consequences of the downfall are still influencing financial systems today.
What happened?
Many would argue that this crisis has been a long time coming. It all started when America's housing market initiated a chain reaction. Low-interest rates and low lending standards fueled a housing price bubble and encouraged millions to borrow beyond their means to buy homes they couldn't afford.
This was then followed by the bankruptcy of the Lehman Brothers firm which had a crippling effect on the American and European economy. In turn, the downturn made the public aware of the banks' potential shortcomings. It also affected the rest of the world detrimentally as the global economy is greatly interconnected.
The 2008 Financial Crisis explained why there is a need to reform our economy and our banking system. It taught us that economic policies are extremely important. What transpired in 2008 is a result of poor regulation and policy-making.
What about now?
Although the 2008 financial crisis was over a decade ago, it essentially shaped some of the policies and regulations that financial institutions are following now. However, some financial experts believe that there are still some fundamental issues not addressed, thus there is still a possibility that history may repeat itself.
Indirectly, the 2008 financial crisis has also led to the birth of the cryptocurrency. Bitcoin was created in 2008 following the incident.
In contrast to fiat currencies, such as the US dollar or British pound, Bitcoin and other cryptocurrencies are decentralized, which means they are not controlled by a national government or central bank. Instead, the minting of new coins is determined by a predefined set of protocols. Technology is beneficial in ensuring that policies are followed at all times, somETHing that humans may not always do.
In addition, the Bitcoin protocol is open-source. This means that anyone can edit the code should they see if there is an issue with the protocol. This ensures room for continuous improvement in the Bitcoin economy, and reduces the chance of a large-scale catastrophe like the 2008 financial crisis happening.
In Conclusion
The 2008 financial crisis explained that rules and regulations of financial systems should be strict and followed at all times. On the other hand, the disaster has increased feelings of distrust towards central financial institutions, therefore looking to other decentralized options of cryptocurrency.
