AZnomicsThe 2008 Financial Crisis
How a housing bubble in Ohio became a global financial catastrophe
The 2008 Global Financial Crisis was the most complex economic disaster since the Great Depression. It began with American homeowners who couldn't repay their mortgages and ended with the near-collapse of the global banking system, $700 billion in government bailouts, and a recession that cost 9 million Americans their jobs.
Banks gave mortgages to people who couldn't afford them — "subprime" loans. They then bundled thousands of these mortgages into securities (CDOs) and sold them to investors worldwide. Rating agencies gave these bundles AAA ratings — as safe as US government debt. They were not. When homeowners started defaulting, the securities became worthless, and the banks that held them became insolvent.
On September 15, 2008, Lehman Brothers — the fourth-largest investment bank in the US — filed for bankruptcy. The government had just rescued Bear Stearns and was about to rescue AIG. But Treasury Secretary Paulson decided to let Lehman fail. Within 24 hours, global credit markets froze. Banks stopped lending to each other. The entire financial system was days from collapse.
The US government spent $700 billion buying toxic assets (TARP). The Fed cut rates to zero and began "quantitative easing" — creating money to buy bonds. Central banks worldwide coordinated. The recession lasted 18 months. But the recovery was slow and uneven — the banks were saved, but millions of ordinary families lost their homes. The political consequences — distrust, polarisation, populism — are still playing out.
Dodd-Frank financial regulation. The Consumer Financial Protection Bureau. Stress tests for banks. Quantitative easing as a standard tool. And the deepest loss of trust in financial institutions since 1929 — which gave rise to Bitcoin, the Tea Party, Occupy Wall Street, and a generation of economic populism.