The global economy in crisis: An overview of the causes, responses and lessons learned

Abstract

This article makes a review of the various interpretations for the causes of the 2008 Financial Crisis. Arguments that point to the changing attitudes of the main actors on the market and contagion are explained. The article also explains market failures and the parties responsible for the crisis.

The crisis was a long process preceded by a period of financial innovations launched to diversify risk in mortgage portfolio. The price drop in the housing market had an effect on other markets as well. The financial crisis came and thus the drop in credit and bankruptcy of major financial institutions.

The article makes an outline of the main reactions of the economic policy towards the crisis and concludes on lessons learned from the crisis. In particular, it is required that the financial system starts financing production again and improves the credit risk analysis. Increasing public awareness of the financial instruments, creating internal incentives that also generate macro-desirable results and regulation of risky products required.