The Unraveling: Inside the 2008 Financial Crisis
- Sep 10, 2025
- 2 min read
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It all started with a simple, seductive lie: "Why rent when you can own?" This seemingly harmless phrase fuelled a housing gold rush that set the stage for a global economic nightmare. Following the dot-com crash and 9/11, the Federal Reserve cut interest rates to nearly zero, making borrowing incredibly cheap. This sparked a surge in home buying, and banks, hungry for profit, began approving high-risk mortgages for anyone with a pulse, regardless of their credit history or income.
Wall Street, in a dizzying display of financial alchemy, took these "subprime" mortgages and bundled them into complex financial products known as mortgage-backed securities and collateralised debt obligations. These products were then sold to investors around the world, spreading the risk far and wide. The real problem was that these bundles, despite being filled with toxic loans, were given an unearned stamp of approval. Rating agencies, paid by the same banks they were rating, gave these high-risk products a safe "AAA" rating, creating a massive conflict of interest.
A few savvy investors saw the house of cards for what it was and began betting against the housing market. They knew it was only a matter of time before the bubble burst. As interest rates eventually rose, homeowners with adjustable-rate mortgages could no longer afford their payments, and the subprime loans began to implode. This caused the value of the supposedly safe securities to plummet, creating a domino effect of panic throughout the financial system. The final piece fell when Lehman Brothers collapsed, bringing credit markets to a screeching halt and sending shockwaves across the globe. So, what happened in the aftermath of such a spectacular failure, and how was the world saved from total economic collapse?
