The 2008 financial crisis: Reflecting on the past and considering the present
The financial crisis of 2008 shook the entire global economy. Now, a decade later, people are wondering how the rules have changed and, more importantly, how to avoid this type of economic crisis in the future.
What started as a financial turmoil in the subprime mortgage market slowly evolved into a large-scale global financial crisis and economic recession. From the massive economic rescue to the ongoing recession, many people are questioning their belief in the stability and transparency of the global banking system.
What happened during the financial crisis?
The financial crisis of 2008 is regarded as the most serious economic disaster after the "Great Depression", and the world economy was severely hit by it. This is also the main reason for the so-called "Great Recession". During the Great Recession, home prices fell sharply and unemployment rose sharply. The impact was so huge that the aftermath is still affecting the financial system today.
In less than two years, more than 8 million U.S. citizens have lost their jobs, nearly 2.5 million businesses have gone bankrupt, and 4 million homes have been foreclosed on. From food shortages to income inequality, more and more people began to lose faith in the economic system of the day.
Although the recession officially ended in 2009, many countries continued to be affected by it for a long time, especially the United States. The unemployment rate in the United States reached 10% in 2009 and did not return to pre-crisis levels until 2016.
What caused the "Great Recession"?
As for the cause, several factors are to be blamed. When the "perfect storm" gradually takes shape, a financial crisis will form once it reaches a critical point. Financial institutions at the time were issuing risky subprime mortgages, and the consequences of this were massive taxpayer-funded bailouts.
Even though the real causes of the 2008 financial crisis were complicated, the most important factor was the series of chain reactions caused by the collapse of the U.S. real estate market, which directly led to cracks in the financial system. What followed was the bankruptcy of Lehman Brothers, which directly hit the economies of the United States and Europe. And all of this also directly made the public aware of the bank's potential shortcomings. Due to the interconnectedness of the global economy, the crisis also had significant impacts around the world.
Why is it so important now?
Although 10 years have passed since the financial crisis, many of the problems it caused are still worrying. Some of the effects of the recession are still lingering, and the global recovery from the crisis remains weak by historical standards. Risky loans are now being made again, and although the chances of default are low, there is no guarantee that this will remain the same.
Regulators now insist that the global financial system has changed significantly since 2008 and that security measures have been significantly strengthened. For this reason, people have come to believe that the global financial system is stronger today than it was 10 years ago.
On the other hand, some people are still thinking: Will the previous economic crisis happen again? And the answer to that is of course a resounding “yes” because anything is possible. Even though many changes have been made and new rules have been implemented, there are still some fundamental issues.
The 2008 financial crisis reminded us that relevant policies are crucial. What happened in 2008 was essentially caused by bad policies made by regulators, politicians and policymakers many years ago. From inadequate regulatory agencies to the impact of corporate culture, the Great Recession is anything but a thing of the past.
The development of cryptocurrencies such as Bitcoin
The emergence of the financial crisis in 2008 exposed some risks of the traditional banking system. However, 2008 was also the year of the birth of the first cryptocurrency, Bitcoin.
Unlike fiat currencies such as the U.S. dollar or British pound, Bitcoin and other cryptocurrencies are decentralized, meaning they are not controlled by national governments or central banks. Instead, the production of such new currencies is determined by a predefined set of rules (protocols).
The Bitcoin protocol and its basic Proof-of-Work (PoW) consensus algorithm ensure that the issuance of this new cryptocurrency is carried out according to a set schedule. More specifically, the generation of new tokens relies on a process called mining. Miners are not only responsible for introducing new coins into the system, but will also protect the network by recording and validating transactions.
In addition, the Bitcoin protocol also sets a maximum supply to ensure that there will only be a maximum of 21 million Bitcoins in the world. And this means that there will be no surprises in the supply of Bitcoin now and in the future. At the same time, the original code of Bitcoin is still open source, so anyone can inspect it and participate in and contribute to its development.
Summarize
Although 10 years have passed since the 2008 financial crisis, people have never forgotten how fragile the international banking system was at the time. There is no complete guarantee that such an event will not happen again, which is perhaps the main reason why decentralized digital currencies such as Bitcoin were created.
Cryptocurrencies still have a long way to go, but they are certainly a viable alternative to the traditional fiat currency system. Such alternative economic networks also hold the promise of achieving economic independence in areas of financial freedom and creating a better world.