After almost 80 years, another global financial crisis threatened to bring the world economy to the brink of collapse. The 2008 Wall Street crash would go down in history as the worst global financial crisis since the infamous crash of 1929. The world's biggest banks, insurance and financial institutions were all involved, and the US Government scrambled to figure out how to save the day.
This four-part investigation goes in-depth into the crisis, unraveling not just the complicated financial instruments that were - well - instrumental in causing the crash but also the behind-the-scenes drama that took place to rescue the American economy. It examines what caused the crash, the events leading up to it, as well as how the incoming Obama administration dealt with the crisis.
In 1994, young bankers came up with a new kind of financial derivative to lessen risk called the "credit default swap". Over the next 14 years, other bankers, seeing how successful trading commercial credit risk was, went into trading consumer credit risk, particularly mortgages on homes. However, because too many people defaulted on their loans, the housing bubble burst in 2007 and 2008. These loans, which were being traded robustly by many big investment houses, suddenly had no value.
Starting March through November 2008, the big financial companies began to show signs of trouble. First was Bear Sterns, followed by the collapse of Lehman Brothers. Global insurance giant AIG then revealed they were days away from failure, which meant that other world markets would be even more affected.
To prevent a global economic meltdown, the White House saved the banking system via the largest bailout in the history of the United States. The Troubled Asset Relief Program (or TARP) cost a whopping $700 billion. This act was unprecedented and deeply divisive and challenged the American political landscape.
There was widescale outrage at how these banks and financial institutions were irresponsible by recklessly trading and operating without transparency. Many expected new and more stringent regulations and banking reforms (one of Obama's campaign promises) would be announced.
At this point, Obama's administration was barely a year old. It inherited the crisis from the previous administration, and many of its root causes and regulatory oversights even pre-date the Bush presidency.
Obama's economic advisers had split into two factions - one was penalizing the banks, while the other was to keep things going to boost market confidence. Obama chose the latter, missing the opportunity to institute effective and long-lasting reforms. None of the banking CEOs even got as much as a slap on the wrist.
The aftermath of the crisis saw America enter "The Great Recession", where the economy slowed down, unemployment was rampant, and many businesses failed.
The banks embroiled in the crisis, however, have now grown even larger. As for Wall Street, even with new regulations in place, it is still making risky calls with no change in its culture, leading to the possibility that all this can happen again.