Systemic Flaws and Economic Theories Behind the 2008 Financial Crisis

This paper explores the systemic flaws within the financial system prior to the 2008 financial crisis, utilizing a historiographical approach to examine which theories: John Maynard Keynes, Hyman P. Minsky, Charles P. Kindleberger, Gary B. Gorton, explains the formation of the 2008 financial bubble. Each theory was examined and contextualized during the period, highlighting the psychological or regulatory failures that caused the formation of the financial bubble. Additionally, the paper explored the Federal Reserve’s policies and considered their implications for the crisis. Also, this paper recommends policies that can be implemented for future prevention, emphasizing the importance of a robust financial system. By analyzing the factors that contributed to the formation of the financial bubble and the Federal Reserve’s response, this research not only reveals the root cause and the progression of the 2008 financial crisis but also offers insight at preventing similar financial crises from reoccurring in the future.