How the 2008 Financial Crisis Actually Happened
Back in 2008, the global financial system experienced one of the worst collapses in modern history, causing economic turmoil across the world. If you’ve ever wondered exactly how it happened, Jonathan Jarvis’s video, The Crisis of Credit Visualized, does a great job of breaking it down in a simple, digestible way.
The Roots of the Crisis
It all started with the early 2000s housing boom. As property values surged, financial institutions saw an opportunity to profit and began issuing mortgages to almost anyone—including borrowers with poor credit. These subprime mortgages were then bundled into mortgage-backed securities and sold to investors, effectively spreading the risk throughout the financial system.
The Role of Financial Instruments
To maximize returns, institutions created even more complex financial products—one of the most infamous being collateralized debt obligations (CDOs). These CDOs packaged different types of loans together and split them into risk tiers, with the idea that diversification would protect against major losses. In theory, it made sense. In reality, it was a ticking time bomb.
The Unraveling
When housing prices started to decline, the weaknesses of these products became clear. As homeowners defaulted on their mortgages, mortgage-backed securities and CDOs lost value, triggering massive losses across financial institutions. The result? A liquidity crisis. Banks stopped trusting each other, credit markets froze, and the damage rippled across global economies.
Lessons Learned
Jarvis’s visualization makes one thing crystal clear: unchecked risk-taking and a lack of transparency in financial markets can be disastrous. This crisis underscored the importance of strong regulation, due diligence, and financial literacy—because whether you’re an investor, a lender, or just managing your own finances, understanding risk is crucial.
If you want to dive deeper into the mechanics of the crisis, I highly recommend watching the full video above.