Question

Can there be another financial crisis similar to 2008? Can we have the same conditions for another crisis to happen? explain.

Answer 1

The crisis in 2008 was led by many factors such as housing boom and lending by banks, complex financial products and underestimation of the risk associated with them and above all the collapse of some institutions increased the systemic risk throughout the world. It is not necessary that the same factors are going to cause the crisis this time because many countries learn the lesson from that crisis and decided to take appropriate action and one of the key things was the increased regulation and capitalization of banks and many countries have done that. However, it cannot be said that the same crisis can not happen in another country but the impact of that scale would be less. If you look at the nature of economic crisis at different point of time then different reason were given to it however the indicators predicting the crisis remained the same. If we take the recent example of COVID 19, this pandemic has created havoc across major economies in the world be it developed or developing because most economies went into lockdown in order to control the spread of virus so most economies are expected to contract this year, whether it gets into recession and how large the impact of that is yet to see but at different point in history different reasons have been cited for the economic crisis.