Financial Crisis of 2007-2010



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Financial Crisis of 2007–2010

Winston W. Chang1
Department of Economics

SUNY at Buffalo

Buffalo, NY 14260
September 24, 2010

Revised: February 28, 2011


Abstract

This paper provides a systematic review and analysis of the financial crisis of 2007-2010. It first examines the various causes of the crisis, including growth of the housing bubble, easy credit conditions, subprime lending, predatory lending, deregulation and lax regulation, incorrect risk pricing, collapse of the shadow banking system, the commodity bubble, and systemic risk. The paper then discusses the impacts of the crisis on the major financial institutions, the financial wealth in the U.S., the real side of the U.S. economy, and the global economy—including Iceland, Hungary, Latvia, Russia, Spain, Ukraine, Dubai, and Greece. The emergency and short-term policy responses are then discussed. The paper then covers a number of principles of financial reforms and regulatory proposals, and examines a few latest U.S. reform proposals. It concludes with a discussion of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the reform of global capital rules—the Basel III accord—which was finally agreed by the Basel Committee on September 12, 2010.


JEL Classification: G00, G01, G18, G20, K20, N20

Keywords: Financial crisis, housing and commodity bubbles, shadow banking system, systemic risk, principles of financial reform, Dodd-Frank Reform Act, Basel III accord.





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