The Financial Crisis of 2008

The Financial Crisis of 2008 was an economic bubble that reached its limits and exploded. A bubble is simply where prices continue to rise beyond the true value. People buy, simply because they believe everybody else is going to buy. A bubble is based on speculation, expectation and ignorance. When these three elements collide it creates a crisis, which is often defined by irrational financial exuberance.

The causes of the economic crisis of 2008 are related to the Bush administration's attempt to finance the war in Iraq with, basically, inflation. The Federal Reserve cooperated by financing the Iraqi war, by essentially lending money to the American state. But printing new money out of thin air, actually devalues the national currency, this is called inflation. This cheap money went straight into the economy, particularly the residential housing market. As a consequence the demand for houses rose; and housing prices took off like a rocket in 2001. Thanks to inflation the prices further accelerated in 2004. More and more people took on mortgages based on cheap currency. The lenders then sold the mortgages as bundles to secondary investors, such as American banks. The American banks then sold their bundles to banks in other countries. This is how American debt spread around the world and became a real international financial crisis. European banks were selling and buying American mortgage as bundles. And all the while all of this was based on cheap money, with no value whatsoever behind it.

People expected housig prices to continue to rise, but the opposite happened. The steady decline began in 2005 and by 2007 the panic kicked in and house prices were crashing down. The collapse of the housing bubble dragged the secondary investors along with it. US debt had spread all around the world and the damage was truly on a global scale.

[georgiosavgerinopoulos]

Well, I must admit.. I've seen a plethora of videos on the same topic and this is by far the best! No bullshit, no conspiracy theories, no reference to political ideologies. Just a thorough, technical analysis. Keep it up dude!

[alexei]

Caspian-jan I impress of ur canal short, clear and objective .Thanks.

[arshu]

hey Shirvan, can u make a new video on after effects of 2008 and current trend of rising populism that runs parallel to economics?

[Iker]

It can still be a sound investment if you seek to preserve the money and fight inflationary erosion.

[nthperson]

I must add, remember that what we refer to as "housing" is really a combination of a location and a housing unit. Housing units rarely increase in value; they depreciate and require constant infusion of labor and capital goods just to hold resale value constant. What rises and crashes because of speculation (whether fueled by easy access to credit or by investor cash) are land prices. At the height of the property market inflation, land-to-total value ratios topped 60 or 70% in high cost areas.

[muniraseylaa]

well explained.. Kinda helped me on my Risk management paper. thank u

[Someguy]

I think I understand. That's confusing though. This wouldn't have happened if we didn't have Fiat money with artificial inflation.

[prabaharanaece]

I still dont understand. How us dollor keep gaining grounds on all other currencies despite printing cheap money

[normalais]

@WeBeItching People voted for Bush. They got what they voted for.

[MaartenvanRossemLezingen]

I still don't get how I found this channel and I also don't get why so little people watch this..

[augustopinochet]

Better than 2008 news




And 10 times better than today's news

[thbyg]

Another way to sum this analysis up: When a nation goes to war it consumes resources to do so. Labor, materials, energy, etc. all have to be expended in the war effort. So those resources have to come from somewhere - someone else has to reduce their consumption to offset the consumption of the war effort. The Bush administration didn't want to publicly force everyone to reduce their consumption by raising taxes, so instead they did it sneakily, by printing money and devaluing everyone's savings, stealing straight from our investments and held cash. This could work for a short term war, but is unsustainable for a long term war because eventually the inflation will become noticeable. It became noticeable in the rise in housing prices, but investors didn't properly understand it to be inflation driven by the war effort, and instead thought it was an easy way to make fast money so they piled into the housing market. The securities market packaged up the mortgage debt and sold it overseas, turning an American problem into a global problem. When the inflation was finally properly understood for what it was, the housing market collapsed and finally global consumption was reduced to offset the consumption generated by the war. We all finally realized we were poorer - we just didn't all realize we had spent our wealth on wars in Afghanistan and Iraq.

[Rickdeckard]

Imo one has to consider the Great Depression and the Banking Act of 1933 (Glass-Seagall) which was drafted as a response to avoid some of the dynamics that lead to the GD. This Banking Act has been gradually shredded by a succession of US Administrations. Other aspects that are related include, the conflicts of interest, the OCC which is a fox chosen by the fox to police the fox(The Bush admin's OCC prevented state prosecutors from bringing banks to court before the crisis.), and the rating agencies which gave AAA to financial ICBMs. There's more to this crisis than a housing bubble.

[michaelhorl]

The Iraq war was not the reason for lowering interest rates. That's ridiculous. Politicians have always cut interest rates so people can get into debt and live better. Politicians never care that this fuels bubbles. When the bubbles crack, they just blame capitalism.

[begley]

I like learning about the financial crisis, I was in my late teens when it happened and I don’t remember feeling the affects in any way from the crash itself but do remember the recession afterwards.

[jamesmonk-steel]

Agreed, oh and run for UK Prime Minister as well please.

[elvinsuleymanli]

All of the videos are awesome. Thanks for all of them.   Sağol

[AbdulAlim-yovh]

you explain really well. this was truely a great video. keep making videos like this. im a huuge fan.

[softamoeba]

Who are you ? And, please run for PRESIDENT ! :)

[Elador]

This is the first time I am hearing about FED lowering the interest rate due to war in Iraq. Most of the times (I am studying finances) the reasons stated for la ow-interest rate is a prevention of recession after the burst of dot.com bubble, which is the common sollution. Can you support your claim by some FED statements or sth?