Former Goldman Sachs chief executive Robert Rubin<\/a> played a role in deregulation. As Treasury secretary, he proposed removing all restrictions on the activities of commercial banks \u2014 enabling them to operate not only with deposits and loans but also to make deals in their own name and in their clients\u2019 names.<\/p>\n Many experts agree that it was deregulation that ultimately led to the global economic collapse. The Guardian later named Greenspan one of the “villains” of the 2008 crash.<\/p>\n “[\u2026] Wall Street, through its influence, lobbying and vast resources, gradually subordinated the political system \u2014 both its Democratic and Republican wings,” noted economist and crypto critic Nouriel Roubini in the film Inside Job (2010).<\/p>\n<\/blockquote>\n There were no conclusions about the negative impact of deregulation (including the repeal of the Glass\u2013Steagall Act<\/a> in 1999) and the expansion of banks\u2019 appetites did not abate after the dot-com bubble burst. In this period the derivatives market flourished. According to the same Guardian article, Greenspan actively defended derivative financial instruments, encouraged the issuance of high-risk mortgage loans, and urged homeowners to switch from fixed-rate to adjustable-rate mortgages.<\/p>\n Interest in the mortgage rose, and deregulation led to the emergence of subprime loans<\/a>. This significantly boosted demand and sparked a self-reinforcing rise in housing prices. Ultimately there was a trend toward bringing riskier products to the market.<\/p>\n How financial institutions profited:<\/p>\n The U.S. housing bubble peaked in 2005\u20132006. From mid-2006 house prices began to fall, and the adjustable rate rose after teaser periods ended and amid a tightening Fed. People found it harder to service debts and to refinance, which led to a sharp rise in default cases.<\/p>\n Banks began foreclosing on borrowers, putting homes up for sale, which intensified negative trends.<\/p>\n The snowball inevitably swept up the banks \u2014 in March 2008 Bear Stearns collapsed. It was acquired by JPMorgan Chase for $236.2 million (about $2 per share). The Fed backed the deal, guaranteeing an influx of emergency funding.<\/p>\n In September the government bailed out the mortgage giants Fannie Mae and Freddie Mac, holders of private mortgage debt worth $14 trillion. It also provided aid to AIG, which proved unable to meet all its insurance obligations.<\/p>\n The next to fall was Lehman Brothers, with debt in excess of $600 billion, which authorities refused to rescue. Merrill Lynch was next, but it avoided bankruptcy thanks to Bank of America.<\/p>\n Companies such as General Motors, Chrysler and others sought government assistance. The contagion spread not only across the United States but the world.<\/p>\n During his U.S. presidential campaign, Barack Obama named<\/a> greed on Wall Street and regulatory missteps as causes of the crisis. Taking office in 2009, he urged<\/a> Americans to learn from Lehman Brothers\u2019 bankruptcy and to back financial-regulation reform.<\/p>\n In particular, responses to the crisis in the United States included:<\/p>\n These crisis-response measures helped improve the economy, but they also produced massive budgetary outlays and a rise in the U.S. national debt. As discontent with government actions grew, by September 2011 Wall Street saw a prolonged protest movement \u2014 Occupy Wall Street.<\/p>\n The October 2008 stock market crash was the worst for the U.S. markets in the previous 20 years. Europe and Asia also faced severe pressures.<\/p>\n The crisis triggered:<\/p>\n IMF experts, in a 2018 study, noted that in ten years most countries had not managed to reach the production levels seen before the economic collapse.<\/p>\n “The 2008 financial crisis has its roots in the mortgage boom in the United States in the preceding five years. Its consequences were felt worldwide \u2014 from closed assembly plants in Mexico to restructuring of regional savings and loan institutions in Spain and prolonged unemployment among migrants in the Pearl River Delta in southern China,” the report said.<\/p>\n<\/blockquote>\n Soon after the collapse AIG, American authorities began investigations into the insurer. Yet in 2010 the U.S. Department of Justice, and later the U.S. Securities and Exchange Commission (SEC) refused<\/a> to press charges against former AIG Financial Products head Joseph Cassano.<\/p>\n Losses at Cassano\u2019s unit, which oversaw credit-default swaps, amounted to $11 billion and led to his dismissal. Yet he received multi-million-dollar compensation and a new contract \u2014 AIG hired Cassano as a consultant at a monthly salary of $1 million.<\/p>\n Staunch defenders of deregulation and of high-risk mortgage lending, among them Greenspan, did not face punishment. They testified before commissions and Congress, but did not face real consequences.<\/p>\n As with the 2008 crisis, the collapse of Sam Bankman-Fried\u2019s business empire was the result of earlier events, sequentially infecting connected players.<\/p>\n The main problem for FTX was its close ties to Alameda Research. The exchange, in collaboration with the trading firm, issued and controlled<\/a> a large portion of the FTT utility tokens (280 million of the initial 350 million). Alameda also acted as one of FTX\u2019s early liquidity providers in May 2019.<\/p>\n A small share of FTT in the market allowed influence over the token\u2019s price. Its surge during the 2021 bull run (from $0.1 to $84) gave Alameda the ability to use the coins as collateral for borrowings. For example, in September that year the trading firm used FTT valued at $1.6 billion<\/a> in a deal with Genesis Global Capital.<\/p>\n After the November 2022 events, former Alameda Research CEO Caroline Ellison testified that she knew about the firm\u2019s access to loans on FTX. She said that, together with SBF, she decided to hide such an arrangement from creditors and to falsify financial statements for this purpose.<\/p>\n “This mechanism allowed Alameda to obtain an unlimited line of credit without requiring collateral,” she explained.<\/p>\n<\/blockquote>\n The well-constructed scheme ran into trouble in early May 2022, when Terra\u2019s collapse roiled the market. It infected several crypto firms, including hedge fund Three Arrows Capital<\/a> and lending platform Celsius<\/a>.<\/p>\n Because they had ties to Genesis Global Capital, Alameda, according to Nansen, faced deleveraging and liquidity crises. It later emerged that FTX provided<\/a> “substantial” financial assistance to a related firm.<\/p>\n This allowed SBF to mask growing problems within the company through November and even to claim the existence of substantial sums<\/a> to support affected industry participants.<\/p>\n The domino effect prompted Binance CEO Changpeng Zhao to dump FTT<\/a> in view of the “recent disclosures.” It is believed he referred to CoinDesk\u2019s investigation revealing details of Alameda\u2019s balance.<\/p>\n On 8 November FTT prices fell by almost 30%<\/a> amid concerns about the exchange\u2019s financial health. By 11 November the FTX Group filed for bankruptcy<\/a>, and Bankman-Fried stepped down as CEO.<\/p>\n From that point the community watched as the crisis engulfing FTX and Alameda Research spread to other players: BlockFi<\/a>, Core Scientific<\/a>, Genesis Global Capital<\/a>.<\/p>\n Unlike 2008, crypto firms did not rely on government rescue. Instead, the industry faced intensified scrutiny.<\/p>\n Lack of proper regulation, according to a number of politicians and crypto participants, also contributed to the 2022 collapse. In November U.S. Senate Banking Committee member Elizabeth Warren not only compared<\/a> digital assets with subprime mortgages, but urged federal agencies to “crack down on crypto fraud.”<\/p>\n The necessity for tighter controls was also highlighted by Bitcoin advocate and former MicroStrategy head Michael Saylor. He criticised<\/a> Bankman-Fried for issuing unregistered securities that helped him earn billions from \u201cmoney-printing\u201d tokens, and said regulation of the industry is a necessary element<\/a> of its growth.<\/p>\n U.S. Representative Tom Emmer launched attacks<\/a> on SEC Chair Gary Gensler. In his view, the FTX collapse is a failure of industry regulation, given that the agency should have been able to oversee projects like Celsius Network, Terra and Voyager Digital from the start.<\/p>\n In December 2022 members of the U.S. Senate Committee on Agriculture (which oversees derivatives trading) and the head of the CFTC<\/span> Rostin Behnam concluded that the Commission\u2019s decades-old rules proved inadequate<\/a> in the context of FTX.<\/p>\n Meanwhile, the SEC\u2019s chief crypto advocate, Hester Peirce noted<\/a> that those responsible for problems in the digital-asset industry did not do anything new:<\/p>\n “Many of the failures in 2022 were linked to crypto market participants doing the same foolish and fraudulent things that players in other markets have done for centuries.”<\/p>\n<\/blockquote>\n Ultimately the Biden administration urged<\/a> Congress to “step up efforts” to supervise the digital-asset industry. In turn, the SEC chief included regulation of cryptocurrencies<\/a> among the Commission\u2019s top priorities for 2023.<\/p>\n However, the first step in that direction did not target the platforms and projects that had destabilised crypto markets. Instead of addressing FTX, the agency\u2019s leadership issued an unexpected move against the Bitcoin exchange Kraken and its staking programs <\/a>.<\/p>\n\n
The Mortgage Trap<\/h3>\n
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The Snowball<\/h3>\n
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The Rescue Plan<\/h3>\n
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What the crisis led to<\/h3>\n
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Crimes and punishments<\/h3>\n
The collapse of FTX and Terra\u2019s role<\/h2>\n
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Reactions to the crisis<\/h3>\n
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