The financial crisis of 2008 highlighted the fragility of the global financial system from "summary" of How Finance Works by Mihir Desai
The financial crisis of 2008 was a wake-up call for the global financial system, exposing its underlying vulnerabilities and fragilities. The crisis unfolded rapidly, starting with the collapse of the subprime mortgage market in the United States and spreading to financial institutions around the world. What began as a housing market downturn quickly escalated into a full-blown financial crisis, shaking the foundations of the global economy. One of the key factors that contributed to the severity of the crisis was the interconnectedness of financial markets and institutions. Complex financial instruments such as mortgage-backed securities and credit default swaps had created a web of interdependencies that made it difficult to assess and manage risks effectively. When one part of the financial system started to unravel, the ripple effects spread quickly, leading to widespread panic and uncertainty. Another important lesson from the crisis was the role of leverage in amplifying risk. Many financial institutions had taken on excessive amounts of debt, assu...
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