Crashed Summary

How did a financial crisis morph into a political earthquake shaking the foundations of societies across the globe? "Crashed" brings this narrative to life, examining the 2008 financial meltdown and its long-lasting effects.

1. The Illusion of Stability in the Mortgage Industry

The seeds of the 2008 financial crisis were sown decades earlier when the U.S. began deregulating lending markets in the 1970s. This deregulation encouraged risky practices that made borrowing cheap and easy, causing a housing bubble. High home values tempted Americans to invest heavily in real estate, believing the bubble would never pop.

To exploit the surge in demand, lenders offered subprime mortgages to people with poor credit. These loans were high-risk but lucrative—at least on paper. Banks then bundled these subprime mortgages into securities and sold them to investors, spreading but not eliminating the risk. This securitization relied on the assumption that the housing market would remain stable, which proved disastrously false.

By 2008, home values collapsed, and borrowers defaulted on their mortgages en masse. The very securities built to distribute risk among investors became toxic, leading banks to massive losses. Lehman Brothers’ failure, primarily due to its heavy investments in subprime mortgages, was only the first casualty.

Examples

• U.S. house prices nearly doubled from 1996 to 2006, creating a $6.5 trillion wealth rise.
• In 2008, two-thirds of Lehman Brothers' $133 billion securities were tied to subprime mortgages.
• Economist Raghuram Rajan’s 2005 warning about market risks went unheard.

2. The Domino Effect on European Banks

European banks heavily invested in U.S. mortgage securities, deepening the crisis when the bubble burst. These banks borrowed funds from Wall Street to buy risky assets, assuming profits were inevitable. Their exposure was immense, holding nearly 25% of U.S. securitized mortgages by 2008.

When the crash spread, many European banks were more leveraged than their American counterparts, meaning their debts far outstripped their cash reserves. This left countries like Germany, Switzerland, and the UK facing financial chaos. Banks like UBS and Deutsche Bank averaged leverage ratios of 40:1, compared to 20:1 in U.S. banks—a dangerous disparity.

The ripple effect led to frozen funds and mass panic. In August 2007, BNP Paribas in France froze its funds due to the U.S. property market's volatility, signaling the start of Europe’s banking crisis. Investors withdrew staggering sums, escalating the financial meltdown.

Examples

• Deutsche Bank’s leverage ratio was twice that of the U.S. average before 2008.
• BNP Paribas froze $2.2 billion of funds in August 2007.
• European banks controlled 29% of risky assets tied to the U.S. housing market.

3. America’s Swift Action Versus Europe’s Paralysis

The U.S. Federal Reserve acted decisively by nationalizing portions of the mortgage finance system and pumping $1.85 trillion into financial markets through quantitative easing. This aggressive approach averted worse outcomes and stabilized the system.

In contrast, the Eurozone failed to address the crisis cohesively. Germany strongly resisted joint recovery efforts, prioritizing its national interests over solidarity. The fragmented response meant weaker economies like Greece struggled to recover, as they couldn’t independently print euros to stimulate their economies.

This disparate response exacerbated the financial divide between northern and southern Europe. Without unified action, debt-laden countries like Greece and Ireland spiraled further into insolvency.

Examples

• $1.85 trillion was injected into the American financial system.
• Eurozone countries like Greece couldn’t issue currency to manage their debts.
• Trade among wealthy nations fell from $17 trillion to $1.5 trillion by late 2008.

4. Greece and Ireland Drowned Without Assistance

Smaller Eurozone countries like Greece and Ireland faced impossible financial burdens without external help. Ireland, for example, guaranteed the debt of its banks, with liabilities exceeding 700 times the nation’s GDP. The move bankrupted the state.

Greece’s problems were just as dire. With a ballooning deficit, the country defaulted, owing billions it couldn’t repay. Despite warnings from economists about the need for urgent intervention, Germany and others refused to commit to a joint recovery plan, leaving Greece and others to fend for themselves.

When the IMF stepped in with financial aid in exchange for austerity measures, economic strain pushed social and political institutions into deep turmoil. Public services were gutted, retirement ages were raised, and citizens bore the brunt of recovery efforts.

Examples

• Ireland’s banking liabilities were guaranteed at 700 times its GDP.
• Greece faced repayments of €53 billion in 2010 but had no means to pay.
• Severe austerity measures led to public unrest and slashes in Greek public services.

5. Russia Exploits Eastern Europe’s Vulnerability

The crisis spread beyond the Eurozone to countries like Ukraine, where the recession became a geopolitical flashpoint. Ukraine’s struggling economy, heavily reliant on its steel industry, was hit hard. As the West offered minimal financial aid, Russia saw an opening.

Russia provided generous financial incentives in exchange for geopolitical loyalty, opposing Ukraine’s pivot toward NATO and Europe. When Ukraine’s pro-Russian president fled amidst protests, Russia annexed Crimea and supported separatist movements in Donbass, sparking a conflict.

Examples

• Ukraine’s steel industry contracted by 34% in 2009.
• The EU offered Ukraine $5.6 billion in aid versus Russia’s $15 billion package.
• Over 10,000 deaths have resulted from the ongoing Donbass conflict.

6. London’s Fall as a Financial Capital

Before 2008, London was the heartbeat of global finance, handling $1 trillion daily from foreign currency reserves. But British banks like Lloyds-HBOS and RBS were deeply impacted, requiring nationalization post-crash.

London’s decline worsened after Brexit disconnecting the UK from seamless trade access to the EU. For the first time in modern history, Wall Street overtook London as the world’s go-to financial hub. European hubs like Frankfurt sought to replace London as businesses reoriented.

Examples

• Before 2008, 250 foreign banks operated in London compared to 125 in New York.
• Lloyds-HBOS required over £17 billion in bailout support.
• Brexit reduced London’s standing in European-dominated trading.

7. The Roots of Brexit: Fear and Resentment

Brexit wasn’t an accident but the result of anti-migration sentiment and long-standing Euroscepticism. Economic hardship during the post-crash austerity measures deepened disdain for migrants and EU policies. Eastern European migrants often became scapegoats for unemployment in some communities.

When Prime Minister David Cameron negotiated slim concessions with the EU, anti-EU parties like UKIP capitalized on public anger. The result was a razor-thin Leave vote in the June 2016 referendum.

Examples

• Opinion polls in 2011 showed fewer than 50% of Britons supported EU membership.
• UKIP gained 27.5% of the vote in the 2014 EU elections.
• David Cameron’s referendum avoided meaningful compromises from Brussels.

8. American Rage Against Wall Street’s Favoritism

Post-crash policies angered Americans as executives responsible for the disaster walked away with bonuses while ordinary people bore the brunt of foreclosures and unemployment. AIG offered employees multimillion-dollar payouts in its financial products unit shortly after being bailed out.

Movements like Occupy Wall Street reflected growing resentment against perceived exploitation. Both conservative and progressive leaders voiced frustration with the government’s seeming complicity in aiding big business.

Examples

• AIG paid $165 million in financial division bonuses while losing $61.7 billion.
• Over 12% of Florida homes faced foreclosure by 2010.
• Bernie Sanders and Breitbart highlighted middle-class suffering.

9. U.S. Elections Reflect Post-Crisis Rage

The 2016 U.S. presidential election showed voters rejecting centrist candidates. Bernie Sanders attacked economic inequality, while Donald Trump capitalized on fear and anger toward globalization and trade deals the right blamed for job losses.

Trump’s election revealed the deep polarization the crash left behind. While he promised reforms during his campaign, his tax cuts benefited the wealthy, further deepening grievances in the broader population.

Examples

• Trump gained support from seven million Obama voters in key swing states.
• Bernie Sanders energized young Americans with an anti-establishment message.
• Trump’s tax policies reduced business taxes by 40%.

Takeaways

1. Governments should prioritize building resilient financial regulations to prevent a repeat of the 2008 crash.
2. Global cooperation is essential in addressing crises that transcend national borders, as unilateral action slows recovery.
3. Voters must demand accountability from leaders and institutions to prevent wealth concentration in times of widespread economic distress.