Lessons
1. Even when you could know the actual value of any financial product, it is tough to tell when it goes to the price where it should be at
2. About the predictability of the incident, the structural vulnerability of subprime loans and CDO can be apparent by calculation, and the airy existence of the housing market can be confirmed by actually observing newly developed residential areas at that time.
3. According to Michael J. Burry, one of the signals of a market crash is a rapid hike in complex financial products.
Restrictions
In 2010 congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. Financial reform legislation secures transparency, preventing banks from taking too much risk. Also, the authority established Consumer Financial Protection Bureau to reduce the number of exploiting loans. Besides, financial products became tradable only in the securities exchanges, where every market participant could observe, and banks became able to go bankrupt in a predictable and controllable manner.
In conclusion
Before and during the financial crisis of 2007–2008, most people believed that the housing market was rock-solid and continued to go up. Investors and hedge funds bought a tremendous amount of CDO because by bundling many subprime loans, which turned out almost every single one was worthless, it seemed like it had high-interest rates and diversified risk at the same time.
The global economy lost its strength to endure the next financial crisis because of it. To get out of the disaster in 2008, governments worldwide have spent money with a substantial monetary easing policy. It is practical to lower policy rates when the economy is in depression, but the rates are already nearly zero or even negative in some countries.
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