Lesson 1
2008-2009: The Financial Crisis
Study 2008 to understand crisis mechanics. The same patterns (credit cycle peak, leverage unwind, Fed response) repeat in every crisis. The specific assets change; the dynamics don't.
📊 Indicators mentioned in this lesson (click for details):
The 2008 crisis is the master class in understanding liquidity, credit, and crisis mechanics.
The Setup (2006-2007):
- Credit cycle at peak: Loose standards, cov-lite, 10x LBOs
- Housing bubble: Subprime at record share
- Leverage: Banks 30-40x leveraged
- Warning signs: SLOOS tightening, ABX falling
The Cascade (2007-2008):
- Subprime defaults rise (early 2007)
- CDO values fall (credit downgrade cascades)
- Collateral values fall (margin calls)
- Banks deleverage (fire sales)
- Interbank lending freezes (trust collapses)
- Credit freezes entirely (September 2008)
The Response:
- Fed: Rates to zero, QE, emergency facilities
- Treasury: TARP ($700B bank bailouts)
- Congress: Fiscal stimulus
- Result: Depression averted, slow recovery
The Lessons:
- Credit leads everything: SLOOS and spreads warned 18 months early
- Collateral chains break: When leverage unwinds, it's fast and violent
- Fed will do whatever it takes: They invented new tools on the fly
- Bottoms are made during panic: March 2009 was maximum fear, maximum opportunity
Check your understanding
Lesson Quiz
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Quiz Check
What were the key warning signs for the 2008 financial crisis in 2006-2007?
Quiz Check
It's March 2009. News is terrible, unemployment rising, banks are failing. Do you buy or wait?