The Global Financial Crisis [GFC] 2007 -2009 was the first major financial crisis of the 21st century.  The crisis originated in the United States’ financial markets as a result of problems with subprime lending, esoteric innovative instruments and unaware regulators.  It was fuelled by policies that allowed the demand for loans by skittish investors rise to unprecedented high levels. The ultimate collapse of the financial sector had contagious effects that filtered through to the real economy with headline unemployment rates in developing nations hitting double digits, to as much as 9.3% in the US in 2009. 
Figure 1 – Labor Force Statistics from the Current Population Survey As credit markets froze worldwide, liquidity was drying up quickly causing the bankruptcy of some reputable and well-established businesses. This article details the main reasons that lead up to the crisis. It critically compares and contrasts the GFC to prior period perturbations – with a special focus being placed upon the Great Depression of the 1930s, and the Asian Financial crisis of 1997-1998.
Finally, some fundamental underlying causes and a contemporary view of the global financial crises by Robert Shiller will be highlighted. The Great Depression & the GFC: Causes, Similarities and Differences The biggest lesson of the global financial crisis was that globalization is a major trend in the 21st century, which has made the world smaller and financial and capital markets ever more interconnected.
 Systematic dynamics need to be controlled, while central banks will have to learn how to respond to growing asset bubbles in an appropriate, professional and timely manner.  Arner (2009) identified that one of the main underlying causes of the GFC of 2008 resulted from the trend of globalisation as domestic regulatory structures were unable to adjust to the rapidly changing realities of global finance. This divergence was predominately felt in the United States, but the problem re-emerged in the countries of the European Union among others.
 As the GFC originated from the United States, it is important to review its previous systematic financial crisis. The 1920’s and the Great Depression of the 1930s is a prime example. The environment that led to the Great Crash of 1929 and the Great Depression were very similar to the one that prompted the GFC. The pre-crisis periods were both marked by unprecedented optimism and economic growth in the United States.
In essence, both crises were defined by excessive financial risk-taking including over-borrowing, over-lending, and over-investment.  While the 1920’s saw excessive risk taking on behalf of the investors in the stock market, which finally led to the Great Crash in 1929, the Global Financial Crisis 88 years later was caused by a more complex environment marked by financial innovation and the relationship between the loan originator and the loan holder. Until the early 1980’s, finance was sticking to an ‘originate and hold’ model.
 Due to a small and lumpy market, America’s government-sponsored mortgage giants started the process of securitisation, in which mortgages, credit card receivables and other financial assets were transformed into more marketable securities. In order to maximize profits, banks decided to switch to a ‘originate and distribute’ model, which spawned a range of structured products that promised huge gains at a cost that was only becoming clear when the loans grew to unsustainable levels and borrowers started to default in the lead up to the GFC.
 As a result the causes of the GFC need to be analysed in the light of this ‘new model’, its hidden features during the credit bubble, as well as its advantages and deficiencies. Generally, financial innovation can be good as it reduces the cost of borrowing for all consumers, giving everyone more investment choices, and thus facilitating economic growth. Its three most important deficiencies, however, were its complexity and confusion, a fragmentation of responsibility and the gaming of the regulatory financial system.
 Both the GFC and the Great Depression led to widespread losses to market participants and lenders, a great loss of confidence into financial markets and among market participants, bank failures, frozen credit markets, and a sharp overall decline in consumption and investment. The financial response to the Great Depression differed dramatically to that of the GFC. Franklin D. Roosevelt remarked famously at his inauguration during a bank panic in 1933: “The only thing we have to fear is fear itself. ”
The newly elected Roosevelt administration responded to the crisis with the New Deal Legislation that was defined by the idea of revamping of the financial system in order to regain investors’ confidence.  By passing the Emergency Banking Act, Roosevelt increased Americans confidence in the banks, and the subsequent Glass-Steagall Act banned improper banking activity by restricting overzealous commercial banks from participating in non-bank activities. As part of the extension of the regulatory framework, they also created the Federal Deposit Insurance Corporation. This removed the problem of bank runs.