2008 Financial Crisis

The 2008 Financial Crisis began with losses in US subprime mortgages and ended with Lehman Brothers' collapse, emergency AIG rescue, TARP, and the Fed crossing policy lines never before crossed. The S&P 500 fell 57% from October 2007 to March 2009. Credit spreads widened to levels that implied a depression. The global banking system was within days of systemic failure. The mechanism was not subprime, it was leverage. Investment banks carried 30:1 leverage on mortgage-backed securities that assumed US home prices could never fall nationally. When that assumption broke, counterparty trust collapsed. Money market funds broke the buck. Commercial paper markets froze. Every leveraged player needed to deleverage simultaneously, creating forced selling across every risk asset. The policy response, TARP, ZIRP, QE1, defined the next decade. The Fed's willingness to backstop the financial system with its balance sheet established the "Fed put" regime that dominated post-crisis markets. Banking regulation (Dodd-Frank, Basel III) changed the structure of Wall Street permanently. But the deeper lesson was about leverage, liquidity, and the fragility of systems that depend on correlations staying low.