Nearly 80 years later, another global financial crisis threatens to push the world economy to the brink of collapse. The Wall Street Crash of 2008 will go down in history as the worst global financial crisis since the infamous crash of 1929. The world’s largest banks, insurance companies and financial institutions are involved, and the U.S. government is eager to find a way to salvage the situation.
The four-part investigation delves into the crisis, uncovering not only the complex financial instruments that led to the collapse, but also the behind-the-scenes drama that was unfolding to save the U.S. economy. It examines what led to the collapse, the events that led to it, and how the new Obama administration handled the crisis.
In 1994, fledgling bankers created a new type of financial derivative to reduce risk called a “credit default swap.” Over the next 14 years, other bankers, seeing the success of business credit deals, ventured into consumer credit deals, especially home mortgages. However, the housing bubble burst in 2007 and 2008 as too many people defaulted on their loans. These loans, which were heavily traded by many large investment firms, suddenly became worthless.
From March 2008 to November 2008, big financial companies began to have troubles. First Bear Stearns, then the collapse of Lehman Brothers. Global insurance giant AIG then announced that it was days away from going out of business, meaning other world markets would be hit harder.
To prevent a global economic meltdown, the White House bailed out the banking system in the largest bailout in U.S. history. The Troubled Asset Relief Program (or TARP) cost as much as $700 billion. The act was unprecedented and deeply divisive, challenging the American political landscape.
There is widespread outrage at the irresponsible, reckless and opaque operations of these banks and financial institutions. Many are expected to announce new and tougher regulatory and banking reforms (one of Obama’s campaign promises).
At that time, the Obama administration was less than a year old. It inherits a crisis from the previous administration, many of whose root causes and regulatory failures predate even the Bush presidency.
Obama’s economic advisers are divided into two factions – one to punish the banks, the other to maintain the status quo and boost market confidence. By choosing the latter, Obama missed an opportunity to initiate effective and lasting reforms. None of the bank chief executives got a slap in the face.
After the crisis, the United States entered the “Great Recession”, the economy slowed down, unemployment was high, and many businesses closed.
At the same time, however, the troubled banks got bigger. As for Wall Street, despite the new rules, it is still making risky decisions without changing its culture, making all of this likely to repeat itself.
