High-risk loans and a poorly regulated financial system caused the worst economic catastrophe since the Great Depression in 2008. Although the economy has recovered, there are concerns about its lasting impact, and some are still skeptical about the possibility of another economic crisis.
A decade ago, the worldwide economy was struck by the financial crisis, causing people to inquire about modifications to the regulations and strategies to prevent a similar economic catastrophe. The 2008’s crisis originated from the subprime mortgage market and escalated into a massive, international financial crisis and recession. The resulting economic downturn and the extensive bailouts have raised doubts about the dependability and clarity of the formerly reliable global banking systems. Many people are now questioning their trust in these systems.
What Happened in 2008?
The 2008 financial crisis was a global calamity and is considered the worst economic catastrophe since the Great Depression. Its repercussions resulted in the Great Recession, with plummeting housing prices and a rapid surge in unemployment. The aftermath was immense and is still influencing financial systems today, causing individuals to lose faith in the system.
Within two years, over eight million Americans lost their jobs, close to four million homes were foreclosed, and around 2.5 million businesses were destroyed. The impacts included food insecurity and income inequality. Although the recession officially ended in 2009, many continued to experience its effects, particularly in the US. The unemployment rate skyrocketed to 10% in 2009 and did not recover to pre-crisis levels until 2016.
Causes of the Great Recession
A "perfect storm" of several factors led to the financial meltdown that was the 2008 financial crisis. Financial institutions provided high-risk loans, predominantly mortgages, which ultimately led to a massive taxpayer-funded bailout.
The origins of the crisis are multifaceted. The US housing market was the primary instigator that triggered a sequence of events exposing weaknesses in the financial system. This was followed by the Lehman Brothers' bankruptcy, which had a devastating impact on the American and European economies. As a result, the public became aware of the potential flaws in the banking industry. The crisis also had a far-reaching impact worldwide, as the global economy is intricately interconnected.
Why Does It Still Matter?
Although it has been ten years since the financial crisis devastated the global economy, there are still concerns regarding its lasting impact. Although the economy has recovered since the recession, the rate of recovery has been weak in comparison to historical standards. Although high-risk loans are still being offered, regulators assert that the global financial system is stronger than it was a decade ago due to new safety measures.
Despite the efforts made and the new rules put in place, some are still skeptical about the possibility of another economic crisis. The answer is that anything is possible, and there are still fundamental problems that exist.
The 2008 financial crisis highlights the importance of policy decisions. The crisis was ultimately caused by poor decisions made by regulators, politicians, and policymakers. From the lack of regulatory oversight to the impact of corporate culture, the Great Recession is a reminder that the past has a significant impact on the present.
The Rise of Bitcoin
The year 2008 brought about not only the financial crisis but also the birth of Bitcoin. Unlike fiat currencies, Bitcoin is decentralized, meaning it is not controlled by a government or central bank. Instead, its creation follows a predefined set of rules, determined by the Bitcoin protocol and its Proof of Work consensus algorithm. This algorithm ensures the issuance of new units of cryptocurrency follows a regular schedule, with mining responsible for introducing new coins into the system and verifying transactions to secure the network.
Additionally, the protocol establishes a fixed max supply of 21 million Bitcoins, guaranteeing a predictable current and future supply. As the Bitcoin source code is open-source, anyone can check and contribute to its development.
The fragility of the international banking system during the 2008 financial crisis has not been forgotten a decade later, and it may have played a role in the development of Bitcoin, a decentralized digital currency. Cryptocurrencies are seen as a viable alternative to the traditional fiat system, and they have the potential to create a better society and financial independence where it does not exist. While they still have a long way to go, a decentralized economic network is a possibility for the future.