The 2008 Crisis occurred when private US banks became so distrustful of one another’s balance sheet risk that interbank liquidity dried up triggering a systemic implosion in the unregulated derivatives market, particularly in Credit Default Swaps (which was a $50-60 trillion market at the time).
The Federal Reserve dealt with this situation by suspending accounting policies (permitting banks to lie about their true balance sheet risk), offering to backstop those banks with the greatest derivative exposure - JP Morgan (JPM), Bank of America (BAC), Goldman Sachs (GS), and Citigroup (C) - shifting trillions of dollars’ worth of toxic debt to the US balance sheet and then funneling trillions of new dollars into the banks most at risk of a derivative collapse (the banks I listed before).
From a philosophical perspective, the Fed removed the notion of “risk of failure” from Wall Street’s collective mind. As anyone who’s studied human behavior
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