The Financial Crisis of 2007

Abstract

The financial crisis of 2007–08 was not unheralded. As Paul Krugman argued in his book The Return of Depression Economics, first written in 1999 and re-issued in 2008, there were many earlier crises that were building up to what was likely to become another major depression. The 1990s alone saw crises in Latin America, East Asia, Japan and Russia. Argentina followed in 2001–02. Most notably, Japan had experienced a debt-fuelled property boom and collapse in the early 1990s from which it had not yet recovered. The 2007–08 crisis began in the US subprime housing market but quickly proved to have ramifications for banks in Europe and across the globe; states and regulating agencies struggled to find a response. From a subprime loan crisis it quickly became a banking and financial crisis and finally an economic crisis on a global scale. What was unexpected was the depth to which financial systems across the globe were undermined. What initially appeared to be a problem in the housing sector of one country in mid 2007 became a major crisis of the world financial system by October 2008 and a global economic recession/depression by 2009. The