AZnomicsThe Financial Crisis
Wall Street, 2007–2009
Home prices still rising. Banks packaging mortgages into CDO bonds. Rating agencies stamp them AAA.
🔍 Why Did This Happen?
Banks gave mortgages to people who couldn't afford them, then sold those loans to Wall Street, which bundled them into bonds and sold them globally. When homeowners defaulted, the entire chain collapsed.
Rating agencies (Moody's, S&P) gave toxic mortgage bonds their highest AAA rating — because the banks creating the bonds paid for the ratings. Pension funds worldwide bought "safe" bonds that were actually worthless.
🔄 What Happened Next
Policy changes, recovery milestones, and lasting lessons
Troubled Asset Relief Program: U.S. Treasury buys toxic assets and takes stakes in major banks. Most money eventually repaid.
Fed creates money to buy mortgage bonds, injecting $1.25T into the financial system. Unprecedented. Controversial. Effective.
Sweeping financial reform: bank stress tests, Volcker Rule (no proprietary trading), Consumer Financial Protection Bureau created, rating agency oversight added.
Global banking rules requiring banks to hold much more capital as a buffer against losses. Banks less profitable but far more resilient.
S&P 500 surpasses its October 2007 peak — 5.5 years after the crash. The recovery benefited the wealthy far more than average workers.