The seeds of the crisis were planted in the late 1990s and early 2000s. After the dot-com crash the U.S. Federal Reserve held interest rates low for a long time; U.S. house prices more than doubled in real terms between 2000 and 2006. Banks issued mortgages to borrowers with weak credit (subprime), then packaged them and sold them to global investors as mortgage-backed securities (MBS) and collateralised debt obligations (CDOs). The credit rating agencies Moody's, S&P and Fitch awarded high (AAA) ratings to many of these packages. Insurance companies such as AIG added another layer of leverage through credit default swaps. From the summer of 2007 house prices began to fall, defaults rose, and the packages lost value; in March 2008 Bear Stearns was sold to JP Morgan for $2 a share under Fed brokerage. In early September Fannie Mae and Freddie Mac were taken into government conservatorship.

On the morning of Monday, 15 September 2008, Lehman Brothers — founded by Henry Lehman in 1850 in Alabama, five generations old — filed for bankruptcy with $639 billion in assets and $619 billion in debt. This time the Fed and the Treasury did not rescue it; the decision was read by global markets as a signal that 'sovereign guarantees are not unlimited,' but the resulting panic was much larger than expected. The next day AIG was nationalised with an $85 billion emergency loan. On 3 October the Bush administration signed the $700 billion Troubled Asset Relief Program (TARP); the Fed then moved to near-zero interest rates and trillions of dollars of quantitative easing (QE). U.S. unemployment rose from 4.7% (November 2007) to 10% (October 2009); global trade fell 12% in 2009 — the sharpest contraction since the Second World War.

The epicentre was the United States but the damage was global. In Europe, sharing a single currency without sharing fiscal policy proved structurally fragile. In 2010 Greece's true budget deficit was revealed to be far larger than the official figures; the country lost access to private bond markets. The IMF, the European Commission and the European Central Bank — the 'troika' — administered bailout programmes in exchange for severe austerity. Ireland (2010), Portugal (2011), Spain (2012) and Cyprus (2013) entered similar programmes. In 2012 Mario Draghi's 'whatever it takes' speech saved the euro, but the social bill was debated for years: Greek youth unemployment exceeded 58%, and the country's economy shrank by a quarter over a decade. China's late-2008 infrastructure stimulus of $586 billion was the largest single contribution to global recovery and permanently enlarged China's weight in the world economy.

The long consequences of the crisis are political more than technical. The perception that banks were rescued while ordinary households who lost homes and jobs were not fed movements from opposite ends — Occupy Wall Street (2011) and the Tea Party (2009). Through the 2010s real wages in Europe and the United States stagnated while asset prices (stocks, real estate) rose fast; QE deepened wealth inequality directly. On this ground the rise of populism — SYRIZA in Greece (2015), Brexit (2016), Trump (2016), Five Star and Lega in Italy, the Yellow Vests in France (2018) — was the political continuation of the economic crisis. In the academy, Thomas Piketty's 'Capital in the Twenty-First Century' (2013) moved wealth inequality into the mainstream conversation. The Dodd-Frank Act (2010) in the U.S. and Basel III (2010) at the global level tightened bank capital; but the underlying fragility — institutions being 'too big to fail' — was not meaningfully reduced.