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[Stream HISTORY](https://play.history.com/) [Try](https://www.historyvault.com/?cmpid=HV_O_Site_H_CTA_TryHISTORYVault) Advertisement Advertisement Advertisement By: Eric Rauchway [21st Century](https://www.history.com/topics/21st-century) # The 2008 Crash: What Happened to All That Money? A look at what caused the worst economic crisis since the Great Depression. [ER Eric Rauchway](https://www.history.com/authors/eric-rauchway)  Spencer Platt/Getty Images Published: September 14, 2018 Last Updated: May 28, 2025 The warning signs of an epic [financial crisis](https://www.history.com/topics/21st-century/recession) were blinking steadily through 2008—for those who were paying close attention. One clue? According to the ProQuest newspaper database, the phrase "since the [Great Depression](https://www.history.com/topics/great-depression)" appeared in *The New York Times* nearly twice as often in the first eight months of that year—about two dozen times—as it did in an entire ordinary year. As the summer stretched into September, these nervous references began to noticeably accumulate, speckling the broadsheet columns like a first, warning sprinkle of ash before the ruinous arrival of wildfire. Settings Quality Playback speed Quality Playback speed ## Here's What Caused the Great Recession Discover the confluence of events that prompted the Great Recession in America and its main culprit: the subprime mortgage housing crisis. 3:21m watch In mid-September catastrophe erupted, dramatically and in full public view. Financial news became front-page, top-of-the-hour news, as hundreds of dazed-looking Lehman Brothers employees poured onto the sidewalks of Seventh Avenue in Manhattan, clutching office furnishings while struggling to explain to the swarming reporters the shocking turn of events. Why had their venerable 158-year-old investment banking firm, a bulwark of Wall Street, gone bankrupt? And what did it mean for most of the planet? The superficially composed assessments that emanated from Washington policymakers added no clarity. The secretary of the treasury, Hank Paulson, had—reporters said—"concluded that the financial system could survive the [collapse of Lehman](https://www.history.com/this-day-in-history/lehman-brothers-collapses)." In other words, the U.S. government decided not to engineer the firm's salvation, as it had for Lehman’s competitor Merrill Lynch, the insurance giant American International Group (AIG) or, in the spring of 2008, the investment bank [Bear Stearns](https://www.history.com/this-day-in-history/bear-stearns-sold-to-j-p-morgan-chase). Lehman, they thought, was not too big to fail. Then-President [George W. Bush](https://www.history.com/topics/us-presidents/george-w-bush) had no explanations. He could only urge fortitude. "In the short run, adjustments in the financial markets can be painful—both for the people concerned about their investments and for the employees of the affected firms,” he said, attempting to quell potential panic on Main Street. “In the long run, I'm confident that our capital markets are flexible and resilient and can deal with these adjustments." Privately, he sounded less sure, saying to advisors, "Someday you guys are going to need to tell me how we ended up with a system like this.… We're not doing something right if we're stuck with these miserable choices." And because that system had become a globally interdependent one, the U.S. financial crisis precipitated a worldwide economic collapse. So…what happened? ## **The American Dream was sold on too-easy credit**Advertisement Advertisement Advertisement Advertisement  Spencer Platt/Getty Images  Spencer Platt/Getty Images The 2008 financial crisis had its origins in the housing market, for generations the symbolic cornerstone of American prosperity. Federal policy conspicuously supported the American dream of homeownership since at least the 1930s, when the U.S. government began to back the mortgage market. It went further after WWII, offering veterans cheap home loans through the [G.I. Bill](https://www.history.com/topics/world-war-ii/gi-bill). Policymakers reasoned they could avoid a return to prewar slump conditions so long as the undeveloped lands around cities could fill up with new houses, and the new houses with new appliances, and the new driveways with new cars. All this new buying meant new jobs, and security for generations to come. Fast forward a half-century or so, to when the mortgage market was blowing up. According to the Final Report of the National Commission on the Causes of the Financial and Economic Crisis of the United States, between 2001 and 2007, mortgage debt rose nearly as much as it had in the whole rest of the nation's history. At about the same time, home prices doubled. Around the country, armies of mortgage salesmen hustled to get Americans to borrow more money for houses—or even just prospective houses. Many salesmen didn’t ask borrowers for proof of income, job or assets. Then the salesmen were gone, leaving behind a new debtor holding new keys and perhaps a faint suspicion that the deal was too good to be true. [Great Recession Timeline ](https://www.history.com/articles/great-recession-timeline) By: [HISTORY.com Editors](https://www.history.com/authors/history) ## **Mortgages were transformed into ever-riskier investments** Advertisement Advertisement Advertisement The salesmen could make these deals without investigating a borrower's fitness or a property's value because the lenders they represented had no intention of keeping the loans. Lenders would sell these mortgages onward; bankers would bundle them into securities and peddle them to institutional investors eager for the returns the American housing market had yielded so consistently since the 1930s. The ultimate mortgage owners would often be thousands of miles away and unaware of what they had bought. They knew only that the rating agencies said it was as safe as houses always had been, at least since the Depression. The fresh 21-century interest in transforming mortgages into securities owed to several factors. After the Federal Reserve System imposed low interest rates to avert a recession after the September 11, 2001 terrorist attacks, ordinary investments weren’t yielding much. So savers sought superior yields. To meet this demand for higher returns, the U.S. financial sector developed securities backed by mortgage payments. Ratings agencies, like Moody's or Standard and Poor's, gave high marks to the processed mortgage products, grading them AAA, or as good as U.S. Treasury bonds. And financiers regarded them as reliable, pointing to data and trends dating back decades. Americans almost always made their mortgage payments. The only problem with relying on those data and trends was that American laws and regulations had recently changed. The financial environment of the early 21st century looked more like the United States before the Depression than after: a country on the brink of a crash. ## **Post-Depression bank regulations were slowly chipped away** Advertisement Advertisement Advertisement To prevent the Great Depression from ever happening again, the U.S. government subjected banks to stringent regulation. [Franklin Roosevelt](https://www.history.com/topics/us-presidents/franklin-d-roosevelt) had campaigned on this issue as part of his [New Deal](https://www.history.com/topics/great-depression/new-deal) in 1932, telling voters his administration would closely regulate securities trading: "Investment banking is a legitimate concern. Commercial banking is another wholly separate and distinct business. Their consolidation and mingling is contrary to public policy. I propose their separation." Advertisement ## Related Stories  [21st Century](https://www.history.com/topics/21st-century) [5 Books You Can Read to Honor the Heroes of 9/11](https://www.history.com/articles/september-11-heroes-books) Firefighters. First responders. Ordinary citizens. Even canines. Settings Quality Playback speed Quality Playback speed ## Stock Market Crash of 1929 Black Thursday brings the roaring twenties to a screaming halt, ushering in a world-wide an economic depression. 2:25m watch He and his party kept this promise. First, they insured commercial banks and the savers they served through the Federal Deposit Insurance Corporation (FDIC). Then, with the Banking Act of 1933 (a.k.a. the [Glass-Steagall Act](https://www.history.com/topics/great-depression/glass-steagall-act)), they separated these newly secure institutions from the investment banks that engaged in riskier financial endeavors. For decades afterward, such restrictive regulation ensured, as the adage went, that bankers had only to follow rule 363: pay depositors 3 percent, charge borrowers 6 percent, and hit the golf course by 3 p.m. This steady state persisted until the latter 1970s, when politicians hoping to jolt a stagnant economy pushed deregulation. Over several decades, policymakers eroded Glass-Steagall separations. Most of what remained was repealed in 1999 by act of Congress, allowing big commercial banks, flush with the deposits of savers, to lumber into parts of the financial business that had, since the New Deal, been the province of the smaller, more specialized investment banks. ## **Investment banks jumped neck-deep into risk** These nimbler firms, crowded by bigger brethren out of deals they might once have made, now had to seek riskier and more complicated ways to make money. Congress gave them one way to do so in 2000, with the Commodity Futures Modernization Act, deregulating over-the-counter derivatives—securities that were essentially bets that two parties could privately make on the future price of an asset. Like, for example, bundled mortgages. stage was now set for investment banks to reap immense near-term profits by betting on the continuing rise of real-estate values—and also for such banks to fail once the billions on their balanced sheets proved illusory because ultimately, overextended American borrowers— who had been sold more debt than they could afford, secured on ephemeral assets—began to default. In an ever-speeding spiral, the bundled mortgage securities lost their AAA credit ratings, and banks fell headlong into bankruptcy. Advertisement Advertisement Advertisement ## **The Bush administration, criticized for earlier bailouts, cut Lehman loose** Advertisement  An employee of Lehman Brothers Holdings Inc. carrying a box out of the company’s headquarters after it filed for bankruptcy. Chris Hondros/Getty Images  An employee of Lehman Brothers Holdings Inc. carrying a box out of the company’s headquarters after it filed for bankruptcy. Chris Hondros/Getty Images In March 2008, the investment bank Bear Stearns began to go under, so the U.S. treasury and the Federal Reserve system brokered, and partly financed, a deal for its acquisition by JPMorgan Chase. In September, the treasury announced it would rescue the government-supervised mortgage underwriters almost universally known as Fannie Mae and Freddie Mac. President George W. Bush was a conservative Republican who, along with most of his appointees, believed in the virtue of deregulation. But with a crisis upon them, Bush and his lieutenants, particularly Treasury Secretary Paulson and Federal Reserve Chair Ben Bernanke, decided not to bet on leaving the markets unfettered. Although not required by law to bail out Bear, Fannie or Freddie, they did so to avoid disaster—only to be castigated by fellow Republican believers in deregulation. Senator Jim Bunning of Kentucky called the bailouts "a calamity for our free-market system" and, essentially, "socialism"—albeit the sort of socialism that favored Wall Street, rather than workers. Earlier in the year, Paulson had identified Lehman as a potential problem and spoke privately to its chief executive, Richard Fuld. Months passed as Fuld failed to find a buyer for his firm. Exasperated with Fuld and stung by criticism from his fellow Republicans, Paulson told Treasury staff to comment—anonymously but on the record—that the government would not rescue Lehman. By the weekend of September 13-14, 2008, Lehman was clearly finished, with perhaps tens of billions of dollars in overvalued assets on its balance sheets. Anyone who still held Lehman securities on the assumption that the government would bail them out had bet wrong. One such institution was the Reserve Management Corporation, which in September re-valued its Lehman securities at zero and then had to announce it could no longer afford to redeem shares in its money-market fund at par value. Shares in RMC's money-market fund were now worth less than a dollar apiece—in the language of finance, RMC had "broken the buck," something no money-market fund had done to individual investors before. The money market, some \$3.5 trillion in size, provided vital short-term financing to U.S. corporations—but now it joined banks, mortgage lenders, and insurance firms among the faithless giants of the financial system that had suddenly proven spectacularly unworthy of confidence. Advertisement Advertisement Advertisement A series of bankruptcies and mergers followed as skittish investors, seeking safe harbor, pulled their money out of supposedly high-return vehicles. Their preferred shelter: the U.S. treasury, into whose bonds and bills the terrified financiers of the world poured what liquid wealth they had left. After decades of trying to push the U.S. government out of banking, it turned out that in the end, the U.S. government was the only institution the bankers trusted. Starved of capital and credit, the economy faltered, and a long slump began. **Eric Rauchway is the author of several books on US history including** [***Winter War***](https://www.basicbooks.com/titles/eric-rauchway/winter-war/9780465094585/) **and** [***The Money Makers***](https://www.basicbooks.com/titles/eric-rauchway/the-money-makers/9780465049691/)**. He teaches at the University of California, Davis, and you can find him on Twitter @rauchway.** Advertisement Advertisement ## Related [ 21st Century 53 videos](https://www.history.com/topics/21st-century/videos)  [21st Century](https://www.history.com/topics/21st-century) [How the Design of the World Trade Center Claimed Lives on 9/11](https://www.history.com/articles/world-trade-center-stairwell-design-9-11) After the jets hit, stairwells became the sole means of escape for thousands of WTC occupants. But design choices hampered full evacuation—and made the descent even more harrowing.  [21st Century](https://www.history.com/topics/21st-century) [9/11 Lost and Found: The Items Left Behind](https://www.history.com/articles/9-11-artifacts-ground-zero-photos) From a bloodied pair of shoes, to IDs to jewelry, here is a look at some of the 9/11 Memorial Museum’s more than 11,000 artifacts—and the heavy stories they carry.  [21st Century](https://www.history.com/topics/21st-century) [5 Books You Can Read to Honor the Heroes of 9/11](https://www.history.com/articles/september-11-heroes-books) Firefighters. First responders. Ordinary citizens. Even canines. [See More](https://www.history.com/topics/21st-century) ## About the author [ER](https://www.history.com/authors/eric-rauchway) [Eric Rauchway](https://www.history.com/authors/eric-rauchway) Eric Rauchway is the author of several books on U.S. history including [*Winter War*](https://www.basicbooks.com/titles/eric-rauchway/winter-war/9780465094585/) and [*The Money Makers*](https://www.basicbooks.com/titles/eric-rauchway/the-money-makers/9780465049691/). He teaches at the University of California, Davis, and you can find him on Twitter @rauchway. ## Fact Check We strive for accuracy and fairness. But if you see something that doesn't look right, [click here](mailto:support@history.zendesk.com?subject=Fact%20Check%20-%20The%202008%20Crash%3A%20What%20Happened%20to%20All%20That%20Money%3F) to contact us! HISTORY reviews and updates its content regularly to ensure it is complete and accurate. ## Citation Information Article Title The 2008 Crash: What Happened to All That Money? Author [Eric Rauchway](https://www.history.com/authors/eric-rauchway) Website Name History URL <https://www.history.com/articles/2008-financial-crisis-causes> Date Accessed April 08, 2026 Publisher A\&E Television Networks Last Updated May 28, 2025 Original Published Date September 14, 2018 Advertisement Advertisement Advertisement [](https://www.aegm.com/) [](https://www.history.com/) [HISTORY Education](https://www.history.com/classroom)[HISTORY Vault™](https://www.historyvault.com/)[HISTORY Apps](https://www.history.com/apps)[HISTORY2™](https://www.aegm.com/brands/h2)[HISTORY en Español®](https://www.history.com/espanol/schedule)[Military HISTORY®](https://www.history.com/military/schedule)[Newsletter Sign Up](https://www.history.com/emails/sign-up)[Share Your Opinions](https://www.historymakerscommunity.com/h/s2/6l5AHktZNpjKXtYEIG2pJX)[FAQ / Contact Us](https://support.history.com/hc/en-us) [Advertise with Us](https://adsales.aegm.com/)[A+E Factual Studios™](https://www.aefactualstudios.com/)[A+E Studios®](https://www.aegm.com/divisions/ae-studios)[Employment Opportunities](https://www.aegm.com/careers)[Accessibility Support](https://www.aegm.com/accessibility-support)[TV Parental Guidelines](https://www.aegm.com/guidelines) [](https://www.aetv.com/)[](https://www.mylifetime.com/)[](https://www.mylifetime.com/lmn)[](https://www.fyi.tv/)[](https://www.vicetv.com/en_us) [](https://www.history.com/leaving-ae/https%3A%2F%2Fwww.biography.com%2F)[](https://www.crimeandinvestigationnetwork.com/schedule)[](https://www.mylifetime.com/lrw/schedule) [Advertise with Us](https://adsales.aegm.com/)[A+E Factual Studios™](https://www.aefactualstudios.com/)[A+E Studios®](https://www.aegm.com/divisions/ae-studios)[Employment Opportunities](https://www.aegm.com/careers)[Accessibility Support](https://www.aegm.com/accessibility-support)[TV Parental Guidelines](https://www.aegm.com/guidelines) © 2026, A\&E Television Networks, LLC. 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By: Eric Rauchway A look at what caused the worst economic crisis since the Great Depression.  Spencer Platt/Getty Images Published: September 14, 2018Last Updated: May 28, 2025 The warning signs of an epic [financial crisis](https://www.history.com/topics/21st-century/recession) were blinking steadily through 2008—for those who were paying close attention. One clue? According to the ProQuest newspaper database, the phrase "since the [Great Depression](https://www.history.com/topics/great-depression)" appeared in *The New York Times* nearly twice as often in the first eight months of that year—about two dozen times—as it did in an entire ordinary year. As the summer stretched into September, these nervous references began to noticeably accumulate, speckling the broadsheet columns like a first, warning sprinkle of ash before the ruinous arrival of wildfire. ## Here's What Caused the Great Recession Discover the confluence of events that prompted the Great Recession in America and its main culprit: the subprime mortgage housing crisis. 3:21m watch In mid-September catastrophe erupted, dramatically and in full public view. Financial news became front-page, top-of-the-hour news, as hundreds of dazed-looking Lehman Brothers employees poured onto the sidewalks of Seventh Avenue in Manhattan, clutching office furnishings while struggling to explain to the swarming reporters the shocking turn of events. Why had their venerable 158-year-old investment banking firm, a bulwark of Wall Street, gone bankrupt? And what did it mean for most of the planet? The superficially composed assessments that emanated from Washington policymakers added no clarity. The secretary of the treasury, Hank Paulson, had—reporters said—"concluded that the financial system could survive the [collapse of Lehman](https://www.history.com/this-day-in-history/lehman-brothers-collapses)." In other words, the U.S. government decided not to engineer the firm's salvation, as it had for Lehman’s competitor Merrill Lynch, the insurance giant American International Group (AIG) or, in the spring of 2008, the investment bank [Bear Stearns](https://www.history.com/this-day-in-history/bear-stearns-sold-to-j-p-morgan-chase). Lehman, they thought, was not too big to fail.  Spencer Platt/Getty Images  Spencer Platt/Getty Images The 2008 financial crisis had its origins in the housing market, for generations the symbolic cornerstone of American prosperity. Federal policy conspicuously supported the American dream of homeownership since at least the 1930s, when the U.S. government began to back the mortgage market. It went further after WWII, offering veterans cheap home loans through the [G.I. Bill](https://www.history.com/topics/world-war-ii/gi-bill). Policymakers reasoned they could avoid a return to prewar slump conditions so long as the undeveloped lands around cities could fill up with new houses, and the new houses with new appliances, and the new driveways with new cars. All this new buying meant new jobs, and security for generations to come. The fresh 21-century interest in transforming mortgages into securities owed to several factors. After the Federal Reserve System imposed low interest rates to avert a recession after the September 11, 2001 terrorist attacks, ordinary investments weren’t yielding much. So savers sought superior yields. Related Stories  ## Stock Market Crash of 1929 Black Thursday brings the roaring twenties to a screaming halt, ushering in a world-wide an economic depression. 2:25m watch He and his party kept this promise. First, they insured commercial banks and the savers they served through the Federal Deposit Insurance Corporation (FDIC). Then, with the Banking Act of 1933 (a.k.a. the [Glass-Steagall Act](https://www.history.com/topics/great-depression/glass-steagall-act)), they separated these newly secure institutions from the investment banks that engaged in riskier financial endeavors. For decades afterward, such restrictive regulation ensured, as the adage went, that bankers had only to follow rule 363: pay depositors 3 percent, charge borrowers 6 percent, and hit the golf course by 3 p.m. This steady state persisted until the latter 1970s, when politicians hoping to jolt a stagnant economy pushed deregulation. Over several decades, policymakers eroded Glass-Steagall separations. Most of what remained was repealed in 1999 by act of Congress, allowing big commercial banks, flush with the deposits of savers, to lumber into parts of the financial business that had, since the New Deal, been the province of the smaller, more specialized investment banks. ## **Investment banks jumped neck-deep into risk** ## **The Bush administration, criticized for earlier bailouts, cut Lehman loose**  An employee of Lehman Brothers Holdings Inc. carrying a box out of the company’s headquarters after it filed for bankruptcy. Chris Hondros/Getty Images  An employee of Lehman Brothers Holdings Inc. carrying a box out of the company’s headquarters after it filed for bankruptcy. Chris Hondros/Getty Images In March 2008, the investment bank Bear Stearns began to go under, so the U.S. treasury and the Federal Reserve system brokered, and partly financed, a deal for its acquisition by JPMorgan Chase. In September, the treasury announced it would rescue the government-supervised mortgage underwriters almost universally known as Fannie Mae and Freddie Mac. President George W. Bush was a conservative Republican who, along with most of his appointees, believed in the virtue of deregulation. But with a crisis upon them, Bush and his lieutenants, particularly Treasury Secretary Paulson and Federal Reserve Chair Ben Bernanke, decided not to bet on leaving the markets unfettered. Although not required by law to bail out Bear, Fannie or Freddie, they did so to avoid disaster—only to be castigated by fellow Republican believers in deregulation. Senator Jim Bunning of Kentucky called the bailouts "a calamity for our free-market system" and, essentially, "socialism"—albeit the sort of socialism that favored Wall Street, rather than workers. Related About the author [Eric Rauchway](https://www.history.com/authors/eric-rauchway) Eric Rauchway is the author of several books on U.S. history including [*Winter War*](https://www.basicbooks.com/titles/eric-rauchway/winter-war/9780465094585/) and [*The Money Makers*](https://www.basicbooks.com/titles/eric-rauchway/the-money-makers/9780465049691/). He teaches at the University of California, Davis, and you can find him on Twitter @rauchway. Fact Check We strive for accuracy and fairness. But if you see something that doesn't look right, [click here](mailto:support@history.zendesk.com?subject=Fact%20Check%20-%20The%202008%20Crash%3A%20What%20Happened%20to%20All%20That%20Money%3F) to contact us! HISTORY reviews and updates its content regularly to ensure it is complete and accurate. Citation Information