Key Messages
The 2008 Financial Crisis: A History Of Turmoil And The Path To Global Stability
The 2008 global financial crisis was one of the most significant events in recent history.
It not only affected economies all around the world, but it left a lasting political legacy as well.
In his book Crashed, Adam Tooze takes readers on a crash course of the 2008 financial crisis.
He looks at the events leading up to the crash and critically examines policymaker’s response to it.
Tooze provides an insightful analysis of why bankers chose to speculate in high-risk mortgages and what lessons can be learned from their mistakes.
He also discusses how this has led to dramatic shifts in politics as governments have struggled to maintain economic stability since 2008.
Ultimately, he argues that understanding the 2008 crisis is key to charting a path back from political and economic turmoil – and that journey starts with this book.
The Recklessness Of Wall Street: How Subprime Mortgages Sparked The 2008 Global Financial Meltdown
The US mortgage industry in the years leading up to the 2008 financial crisis was a house of cards, just waiting to collapse.
This was due to a series of events that had begun as far back as the 1970s, when US lending markets were first deregulated, making them both highly profitable and incredibly risky.
Starting in 1996, house prices in the US abruptly began rising exponentially, with household wealth surging by $6.5 trillion as Americans cashed in on their properties.
Money lenders then saw an opportunity and relaxed the conditions for obtaining a mortgage, even for households previously deemed too high-risk to qualify for one.
These new so-called ‘subprime mortgages’ seemed like a quick money maker at first—until 2008 rolled around and borrowers started defaulting on their repayments en masse.
This has set off an avalanche of problems for banks that had invested heavily in subprime mortgages by bundling them together into so-called “bundles” and selling shares via securitization.
When borrowers stopped paying back their loans, lenders found themselves repossessing houses worth much less than they originally mortgaged them—and those mortgages suddenly became worth very little themselves.
The result? The world’s financial system imploded.
The Erosion Of European Banks: How Reckless Lending Practices Led To A Global Crisis
When the US financial crisis of 2008 began to unfold, it quickly became evident that European banks were incredibly exposed to some of the riskiest lending practices in the country.
European banks had no hesitation in throwing their money into US’s housing boom and borrowed lavish sums from Wall Street lenders, pushing their exposure even higher.
By 2008, a quarter of all housing mortgages in America had been taken up by foreign banking institutions – most notably Europe.
On top of this, 29% of the high-risk securities were held by Eurozone based banks.
This was compounded by an exceedingly risky leverage ratio where UBS, Barclays and Deutsche Bank averaged over 40:1 debt to real money.
This meant they had little chance of covering their debts should a crash take place.
When you factor in the meagre funds held by major European Central Banks like those based in Switzerland, Britain and more significantly those at the Eurozone’s ECB – who could only muster $200 billion – it created a disastrous situation unheard off since bank runs during the Great Depression.
Germany’S Impact On The Eurozone Crisis: Rejecting Joint Support And Deep Historical Roots
When it comes to the 2008 housing crash, the United States acted quickly and effectively, whereas the Eurozone failed to coordinate an adequate response.
While the US Federal Reserve injected $1.85 trillion into the cash-starved banking system and launched a powerful program of quantitative easing, Angela Merkel’s German government blocked a joint approach that could have defused the crisis in Europe.
The use of a common currency by Eurozone members had major consequences.
Economically weak countries such as Greece were able to borrow at the same rate as powerhouses such as Germany, but when repayment time arrived, the former country was always in bigger danger of defaulting on its debt than its wealthier counterpart.
Individual Eurozone nations also couldn’t print their own currency as they had previously used to do; instead this became something controlled only by the European Central Bank.
This lack of coordination meant that Eurozone countries were left to deal independently with high levels of debt leading to huge financial instability across Europe due to bailout failures while US action proved more successful overall in resolving its own crisis.
How The Imf Brought Harsh Austerity To Spell Relief For Europe’S Poorest Nations
In the aftermath of the 2008 crash, European leaders like Chancellor Merkel were unwilling to provide relief to smaller countries that found themselves in trouble.
This lack of European unity caused several countries, particularly Greece and Ireland, to struggle with the consequences of the financial crisis.
Ireland saw its leading banks accumulate debt amounting to over 700 times its total GDP, prompting a bank run that bankrupted the state.
In Greece’s case, its deficit totaled up to ten percent of GDP before 2010 and it was scheduled to repay 53 billion euros of debt – clearly an impossible task for such a small nation.
If something wasn’t done about these two struggling economies, it risked dragging their larger Eurozone members down with them.
That’s why help from a third-party was needed; something both Merkel and Obama agreed upon.
Enter the IMF as they would be called in to break the deadlock and offer bailouts with some harsh austerity measures attached – most notably in Greece where retirement age, VAT and public sector jobs & pay were all affected drastically.
The lack of collective help within Europe almost brought disaster; it only managed to avert economic contagion because of outside help within limits that had never been seen before inside Europe – owing mainly due to its political effects being felt years later.
The Economic Crisis In Eastern Europe Reignites The Age-Old Conflict Between Russia And The West
The recession of the 2000s led to widespread economic disruption in the former Eastern Bloc countries, like Poland, Latvia and Estonia.
With most of their industry being foreign-owned, these countries found themselves stuck in the middle of a long-standing rivalry between Russia and the West.
This meant that when it came time for them to get foreign investment for their economies, they had to choose between siding with either NATO or with the Russian-led Eurasian Customs Union.
Russia took advantage of this by exploiting the economic vulnerability of these nations – offering larger aid packages than what was put forth by Western institutions such as the IMF and EU.
Ukraine was one such country that was hit hard by these events – with around 42% percent of their export earnings coming from steel at that time and an eventual decline by 34%.
When faced with two options, they decided to accept Russia’s offer which included cheap gas contracts and $15 billion in loans in exchange for joining the Eurasian Customs Union.
This led to an immense wave of pro-European protestors taking to the streets in Kiev, sparking a violent crackdown that ultimately ended with Yanukovych fleeing his own country and replaced by an interim government who immediately accepted the IMF-EU’s deal instead.
Outraged at this turn of events, Russia refused to recognize the new government and retaliated by annexing Crimea and supporting separatists in Donbass region – leading to devastating consequences for all involved.
The 2008 Global Crash Changed The Face Of London’s Financial Sector Forever
The global crash had a profound effect on London, the EU’s largest non-Eurozone member.
What had once been the world’s number one financial hub was drastically changed by the tremors of the crisis, possibly forever.
Before all this, London had become a top financial center thanks to the Bretton Woods Agreement that regulated trading relationships between 44 countries from 1944 to 1971.
It kept currency conversion simple and ensured stable growth.
By 2007, $1 trillion in foreign currency was being traded in London every day and 250 foreign banks were based there–twice as many as in New York.
The 2008 crash brought much of that to an end.
Two British banking giants–Lloyds-HBOS and RBS–were nationalized while banks like Deutsche, Barclays, or Credit Suisse saw their fortunes drop when compared to Wall Street’s firms.
How Long-Standing Anti-Eu Sentiment, Austerity Measures, And Eurozone Turmoil Led To Brexit
When the Conservative-led coalition took over in 2010, many looked to Brussels and London to protect London’s status as a global financial hub.
The 2008 crash intensified fears that the EU might undermine investment, and support for Euroscepticism was surging.
In 2011, polling showed that less than 50 percent of Britons wanted to remain in the EU.
The government then responded with a plan for a referendum which could be used as leverage against Brussels to secure concessions on issues such as integration and access to benefits by EU nationals.
David Cameron calculated conditions would favor Remain at the time of the referendum.
However, with negotiations stalling due to Eurozone crisis, sweeping gains made by Eurosceptic parties like UKIP in European elections, plus an unconvincing campaign to remain in the EU – it wasn’t meant to be for Cameron or Remain supporters.
The 2008 Financial Crisis Revealed The System Was Rigged To Benefit The Wealthy Elite
The financial crash of 2008 left a deep mark on American society.
Pockets of anger formed among those who were struggling due to the economic downturn, fuelled by a sense of injustice stemming from how Wall Street executives had been rewarded for their reckless actions.
$18.4 billion in bonuses was paid out to them at the same time ordinary people were facing foreclosure, confirming in the minds of working-class Americans that they’d been deliberately set up for a fall.
This anger spread to both sides of the political spectrum – even people like Robert Reich, a former labor Secretary for Bill Clinton, argued that “the problem isn’t the size of the government but whom the government is for” – and ultimately led many alienated voters to abandon the political center ground.
Billionaire businessman Warren Buffett suggested increasing income taxes on high earners, but Congressional Republicans rejected this policy swiftly; further confirming what anti-establishment voices on both sides had already been hinting at – that the system was rigged in favor of wealthy elites.
Though there are various elements leading to this abandonment such as misguided policies, financial schemes etc., it can easily be concluded that it’s largely due to the unfairness caused by the crash itself which ultimately forced many angry American voters away from traditional party loyalties and drove them towards more radical solutions outside of mainstream politics.
Rage Against The Establishment: How A Decade Of Unchecked Inequality Led To Trump’s Presidency
The financial crisis of 2008 created a deep sense of injustice and inequality throughout the US, as the wealthiest were able to go unscathed while working-class Americans felt the brunt of the pain.
This proliferating anger was rejected in the 2012 election, with both Obama and his opponent Mitt Romney being members of the establishment and seemingly oblivious to the plight of average Americans.
It wasn’t until 2016 that these frustrations made it to the ballot box, where American voters found candidates in Bernie Sanders on one side and Donald Trump on the other who were willing to make tackling Wall Street’s outsized influence a priority.
Sanders called out Wall Street’s abuses directly while Trump railed against what he perceived as job-killing trade deals with China.
In spite of this momentum, Hillary Clinton ultimately emerged as the nominee for Democrats – despite her ties to Wall Street bankers – after many bet on her more moderate policies carrying over Obama’s legacy.
Trump won thanks in part to seven million voters who had previously backed Obama but switched their votes in 2016.
Since then, President Trump has continued deferring to the wealthy by slashing business taxes by 40% and raising estate tax threshold to $11 million- leaving many asking if expressions of outrage against greed will have any real affect in future elections.
Wrap Up
The final conclusion of “Crashed” is this: the financial crisis of 2008 left many governments and institutions ill-equipped to handle the aftermath.
Their lack of coordination and inability to punish those responsible for tanking the global economy only made matters worse, leading to immense civil unrest among citizens.
This sparked a political crisis that has far-reaching consequences still felt today, over a decade later.
We now see the effects glaringly present in events such as Brexit and President Trump’s election in America – all due to the worst crash since 1929.
