Chapter 8: The 2008 Crash — What Went Wrong
In September 2008, the global financial system came within hours of complete collapse. Lehman Brothers fell, AIG was rescued, and governments spent trillions to prevent a second Great Depression. How did the smartest people in finance miss the biggest risk of all?
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September 2008. The financial world watched in horror as Lehman Brothers, America's fourth-largest investment bank, declared bankruptcy. The dominoes began to fall.
But how did we get here? A tangled web of interconnected risks. Homeowners borrowed too much, banks packaged bad loans, and ratings agencies gave them AAA.
These were CDOs and Credit Default Swaps: financial instruments so complex, even their creators struggled to explain them. It was a house of cards.
The moment of truth arrived: housing prices plummeted, mortgages defaulted, and those 'safe' CDOs were suddenly worthless. The rot was systemic.
Panic spread like wildfire. AIG needed an unprecedented bailout. Money markets froze. Banks stopped trusting each other, seizing the entire global system.
Governments worldwide intervened with trillions in bailouts, emergency rate cuts, and quantitative easing. The message was clear: some institutions were 'too big to fail.'
The aftermath: millions of jobs lost, a Great Recession, and Occupy Wall Street. Bankers received bonuses, while homeowners lost everything. The system had changed, but for whom?
