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You know, historically, every 8 to 15
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years or so, we poke a global economy
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with a stick and eventually it breaks in
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spectacular fashion. We like to think
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that financial crashes are
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unpredictable, right? That they happen
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out of nowhere, that they're caused by
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some one-time event nobody could ever
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see coming. But if you zoom out, the
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same crisis has already happened again
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and again. So, in this video, we're
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walking through five of the biggest
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financial meltdowns in modern history.
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What triggered them, how they unfolded,
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and what they all have in common.
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Because history doesn't repeat itself
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exactly, it just keeps getting more
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expensive. Welcome to Alux, the place
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where future billionaires come to get
00:00:44
inspired.
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When debt outruns productivity, the 2008
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financial meltdown. So, in the years
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leading up to 2008, nothing really felt
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that dangerous. The economy was growing.
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Unemployment was low. Banks seemed
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stable. Owning a home felt like the
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safest thing you could do. Buying
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property was seen as a guaranteed way to
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build wealth. And people trusted the
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system that made it all so easy. It was
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all very ordinary on the surface. But
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behind that calm, the entire system was
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pushing risk further and further out of
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view. Banks had changed how they made
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money. So instead of holding on to
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mortgages and collecting payments over
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time, they started bundling those
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mortgages into financial products they
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could sell immediately. These were
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called mortgagebacked securities. So
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just imagine thousands of mortgage
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contracts dropped into a blender. The
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result is a jar full of debt sliced into
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layers and sold off to investors. The
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top layer gets paid first, so it's
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safer. The bottom layer gets paid last
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but earns more. So, as long as
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homeowners paid their mortgages, the
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system worked okay. So, banks rushed to
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create more mortgages, even if they had
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to give loans to people with no income
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or savings. But they didn't care if the
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first borrower couldn't afford the loan
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because the moment the paperwork was
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signed, the risk was passed on to
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somebody else. And everything worked
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fine until those housing prices stopped
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going up. You see, a lot of people
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weren't actually paying their mortgages
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out of their own income. They were
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counting on their homes going up in
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value. So, when they needed money, they
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would just refinance, meaning they would
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borrow more against the new, higher
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value of the home. But in 2006, that
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stopped working. Prices didn't go up
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anymore. In some places, they started
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going down. Imagine you bought a house
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for $400,000 and now it's only worth
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$350,000,
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but you still owe $390,000 on it. You're
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stuck. You can't refinance. You can't
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sell. So, you just stop paying. And you
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weren't the only one. Millions of people
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were in the same boat. That is when the
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chain reaction started. The
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mortgagebacked securities, those jars
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full of monthly home payments that
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investors bought, they started to dry
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up. Less money was coming in. And
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remember, the riskiest investors got
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paid last. So when homeowners started
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defaulting, those bottom layers got
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wiped out. Then the middle layers
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cracked. Soon, even the top layers
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weren't safe anymore. And here's where
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it got even worse. Some big banks had
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sold insurance on these jars, a
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financial product called a credit
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default swap. It was like saying, "Don't
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worry, if the mortgage jar breaks, I'll
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pay you for the damage." Except they
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sold way too much of this insurance. And
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when the jars started breaking
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everywhere, they could not cover the
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damage. Investors panicked. No one knew
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who was safe anymore. Banks stopped
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lending to each other. People couldn't
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get loans. Businesses couldn't make
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payroll. The entire money system froze.
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And that's when Lehman's brothers
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collapsed. That's when the government
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stepped in with trillions. And that is
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how a few bad home loans became a global
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financial crisis. Over 8 million
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Americans lost their homes. Stock
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markets around the world crashed.
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Unemployment soared. And the global
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economy froze. Governments printed
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trillions of dollars. Interest rates
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were slashed to zero. Banks got bailed
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out, but families did not. For most
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people, the recovery took years. For
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some, it never came. This is what
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happens when debt grows faster than
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value. The system was designed to reward
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quantity over quality. The more loans
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given out, the more money made, even if
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the borrowers couldn't pay back. Every
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financial system starts with rules. Then
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we find loopholes. Then we build entire
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industries inside of those loopholes
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until the system collapses under its own
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weight. 2008 wasn't the first time that
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we mistook complexity for safety. And it
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certainly won't be the last either. And
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if you want to not only build your
00:05:09
wealth aluxer, but secure it from
00:05:11
financial crisis, the lessons and tools
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available to you within the Alux app are
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incredibly valuable. We hire industry
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experts to break down all of the steps
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annual membership. And well, that's
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enough self-promotion for today. All
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right, let's carry on here and discuss
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when speculation replaces fundamentals.
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We're talking about the dot bubble next.
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So, by the mid 1990s, the Cold War was
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over. America was the only global
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superpower. The economy was strong,
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inflation was low, and unemployment was
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falling. The internet was brand new with
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no one really understanding it yet. But
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everyone agreed it was going to change
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everything. And in a world that felt
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stable, people were willing to take
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risks. Investors had money to burn,
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interest rates were falling, and the
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tech industry offered something the old
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economy didn't. the future and that's
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where the money started flowing. So the
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logic was simple here. If the internet
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was going to be the next big thing, then
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every internet company would eventually
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be huge. Investors wanted to get in
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early. So they started funding companies
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based on potential, not performance. As
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long as you had a dot in your name and a
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big enough vision, someone would write
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you a check. Startups raised hundreds of
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millions and spent it fast, mostly on
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advertising, offices, and staff. They
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weren't profitable. Some didn't even
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have working products. But that didn't
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stop them from going public. Once they
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hit the stock market, regular people
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joined in. Everyone thought, "Well, if
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this is the next Amazon, I'll get rich,
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too." Stock prices went up just because
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people believed they would. Suddenly,
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companies with no business model were
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worth billions. Investors were buying
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based on the story, not the numbers. And
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the media fed into this hype. A website
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selling dog food gets a Super Bowl
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commercial before it ever makes any
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money. That was pets.com, and it raised
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$300 million before it collapsed. The
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bubble grew because everyone thought
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they could sell at a higher price before
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things fell apart. Nobody wanted to be
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the last one holding the bag. But
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eventually people started asking some
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real questions. They looked at the
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numbers and saw the truth. Most of these
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companies were burning through money
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with no real path to survive. The moment
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confidence dropped, the selling began.
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And once the prices started falling, it
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turned into a stampede. People rushed to
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cash out. Companies that were worth
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billions one month were worthless the
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next. The entire tech sector collapsed.
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The NASDAQ, the index filled with tech
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stocks, fell nearly 80%, $5 trillion
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dollar in market value disappeared. Tens
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of thousands of people lost jobs.
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Startups shut down. And investors who
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thought they were riding the future lost
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everything. Even strong companies like
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Amazon lost over 90% of their value. It
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would take years to recover. Every
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bubble starts the same way, okay? with a
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new idea and a new crowd that can't stop
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looking at it. But attention doesn't
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equal value. You can't pay your
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employees or investors with hype. Okay?
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And every time we forget that, the crash
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comes right on schedule. Next up, when
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inflation becomes the hidden tax, we're
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talking about the oil crisis and
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stagflation.
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So, by the early 1970s, the world had
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shifted, right? The US was no longer the
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only economic giant. Other countries,
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especially in the Middle East, had
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started to realize how much leverage
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they held, especially when it came to
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energy. Oil had become the world's most
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important resource, and America was
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using more of it than anyone else. At
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the same time, the US had just lifted
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the gold standard. That meant the dollar
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was no longer tied to anything fixed,
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and inflation was already picking up.
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The global economy was entering a new
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phase. more connected, more volatile,
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and more vulnerable to power moves. In
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1973, the US supported Israel in a major
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war. In response, a group of oil
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producing countries, OPEC, decided to
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cut off the supply of oil to the West.
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With one decision, the world's energy
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supply was squeezed overnight. Oil
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became four times more expensive in a
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matter of months. Gas prices soared, and
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the cost of everything else followed.
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Because you see, oil was baked into
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everything. Shipping, manufacturing,
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transportation, food. So when oil prices
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went up, the cost of almost everything
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else followed. That is inflation. But
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normally when inflation happens, it
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means the economy is strong and people
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are spending more. But that's not what
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happened here. This time prices were
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going up, but the economy was slowing
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down. Companies were cutting jobs,
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growth stalled, and yet the cost of
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living kept rising. This was something
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new here. Stagflation, which is
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inflation plus stagnation. Central banks
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were stuck. If they raised interest
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rates to fight inflation, they would
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make the recession worse. If they kept
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the rates low, prices would keep on
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rising. They tried a little bit of both,
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but it didn't work. Confidence kept on
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falling, and people started to feel like
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there was no way out. By the end of the
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1970s, the US economy had been dragged
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through nearly a decade of pain.
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Inflation hit double digits.
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Unemployment stayed high. And a dollar
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in 1970 could buy only half as much by
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1980. Gas was being rationed. Wages were
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not keeping up. Retirees saw their
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savings lose value, even if they had
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never touched the money, and there was
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no market crash to mark the pain. The
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only way out came in the early 1980s
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when the Fed raised interest rates to
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nearly 20% to stop inflation cold. It
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triggered another recession, but it
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finally worked. Now, this crisis wasn't
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caused by bad loans or the stock market
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hype. It was caused by supply shocks,
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bad policy, and overdependence on one
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resource. And it proved to be something
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that we still forget today. Okay?
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Inflation is not just about numbers. It
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is about trust. Once people lose faith
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in what their money can buy, fixing the
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problem becomes 10 times harder. This
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wasn't just economic pain. This was a
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loss of control. All right. Next, we're
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looking at when asset prices detach from
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reality. We're talking about the
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Japanese asset bubble. So, in Japanese
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culture, status is quiet and subtle.
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Often tied to things like education,
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reputation, or ownership of something
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meaningful. By the 1980s, one of those
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things was land. Owning property in
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Tokyo was a symbol of success, and the
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more valuable it became, the more people
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wanted it. At the same time, Japan's
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economy was on fire. The country had
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rebuilt after World War II, launched a
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manufacturing boom, and was now
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producing the world's best electronics
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and cars. People started to believe it
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would soon be the richest country on
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Earth. So, to keep the economy growing,
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Japan's central bank kept interest rates
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low. That made borrowing cheap, and a
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lot of that borrowed money started
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flowing into land and stocks. People
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were buying property because they
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believed somebody else would buy it for
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more later on. Sound familiar? So, banks
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saw prices going up and assumed that
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meant the risk was low. So, they kept on
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lending even when the numbers stopped
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making sense. At the peak of the bubble,
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the land under Tokyo's Imperial Palace
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was estimated to be worth more than all
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of the land in California. It felt like
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Japan was finally taking its rightful
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place at the top of the global economy.
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Real estate prices in Tokyo were going
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up so fast, people stopped asking what
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something was worth and just asked how
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much they could borrow to buy it.
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Companies were taking out loans, buying
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land, and then using that same land as
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collateral to borrow even more. Banks
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were filled with these inflated assets,
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and because nobody wanted to break the
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illusion, everything looked stable, even
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though it wasn't. Then in the early
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1990s, the Bank of Japan raised interest
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rates to cool things down. Borrowing got
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more expensive and demand started to
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fall. Now, it didn't crash all at once,
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but the moment prices stopped rising,
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that cycle broke. People stopped buying.
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Companies couldn't pay their debts.
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Banks were left holding assets that were
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worth far less than they had thought.
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And nobody wanted to admit how bad it
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really was. The stock market collapsed.
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The real estate market deflated. But
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instead of fast cash, Japan entered a
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long, slow decline. A home bought in
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Tokyo in 1991 was still worth less than
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its purchase price 15 years later. The
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1990s became known as the lost decade.
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But that stagnation dragged on well into
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the 2000s. Wages flattened, spending
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slowed, young people stopped taking
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financial risks. Japan essentially froze
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in time economically for an entire
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decade. And you know what makes the
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Japan crisis so interesting is that
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technically it wasn't even supposed to
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happen. Japan was doing everything
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right. Real growth, real exports, real
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innovation. Their economy was built on
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actual progress. At the time, everything
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worth having seemed to come out of
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Japan. '80s Japan was literally how the
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future was supposed to look like. But
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then they pulled a classic TJ Collad.
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They suffered from success. And in the
00:15:06
most poetic way possible, they walked
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themselves straight into a bubble. And
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finally, we got to talk about when trust
00:15:13
in the system collapses.
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That was the Great Depression. Now, in
00:15:18
the 1920s, America was full of
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confidence. The war was over, at least
00:15:23
the first one. Industry was booming,
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cities were growing fast, cars were
00:15:27
everywhere, and technology was changing
00:15:29
daily life. People believed the country
00:15:31
had entered a new era, one where
00:15:33
prosperity was permanent. Newspapers
00:15:36
called it the roaring 20s. Jazz clubs
00:15:39
were packed, radios were in every home,
00:15:41
and everyone from business owners to
00:15:43
barbers wanted a piece of the stock
00:15:45
market. Most people had never owned
00:15:47
stocks before, and now they could thanks
00:15:49
to Easy Credit. All they had to do was
00:15:52
borrow some money, buy some shares, and
00:15:53
wait for the price to go up. And that's
00:15:56
exactly what they did. Stock prices kept
00:15:58
rising and people thought it would never
00:16:00
end. Banks were lending to anyone who
00:16:03
wanted to invest and because prices were
00:16:05
climbing so fast, people were borrowing
00:16:07
more and more. The problem was they were
00:16:10
buying stocks with money they didn't
00:16:12
have. That's something called buying on
00:16:15
margin. Basically borrowing the money to
00:16:17
invest more than you can afford.
00:16:20
Something the folks over at R Wall
00:16:21
Street Bets know a little bit too much
00:16:23
about. So if the stock went up, they
00:16:25
made big profits. But if it went down,
00:16:27
they still owed that loan. At first, it
00:16:31
worked. Everyone seemed to be getting
00:16:33
rich, but underneath the prices had
00:16:35
gotten far ahead of reality. Most
00:16:37
companies weren't earning enough to
00:16:39
justify their stock prices. The system
00:16:41
was full of debt. In October 1929, some
00:16:45
large investors quietly started to sell.
00:16:48
That made others nervous. More people
00:16:51
sold, prices started falling, and the
00:16:53
confidence that had held a whole system
00:16:55
together began to unravel. Because so
00:16:58
many people had borrowed to buy stocks,
00:17:00
falling prices triggered panic.
00:17:02
Investors couldn't cover their loans, so
00:17:05
they were forced to sell, which pushed
00:17:07
prices down even more. It wasn't just
00:17:10
individuals. Banks were invested, too.
00:17:12
Some with their customers money. When
00:17:14
the market fell, they lost everything.
00:17:17
And once banks started failing, people
00:17:19
rushed to pull out their savings. But
00:17:21
the banks didn't have the cash.
00:17:23
Thousands of them collapsed. There was
00:17:26
no deposit insurance. If your bank
00:17:28
failed, your money was gone. The economy
00:17:31
simply stopped. Unemployment in the US
00:17:34
reached 25%. Factories shut down. Trade
00:17:38
collapsed. People who had once been
00:17:40
middle class were now standing in
00:17:42
breadlines. The crash spread globally.
00:17:45
Europe was already unstable and the
00:17:47
depression made it worse. It pushed
00:17:49
countries toward nationalism,
00:17:51
protectionism and eventually war. It
00:17:54
took over a decade and a world war to
00:17:56
rebuild confidence in this system. Now,
00:18:00
every economy runs on credit and trust.
00:18:03
People trusted the market. They trusted
00:18:05
the banks. They trusted that the system
00:18:07
would keep on working. But none of it
00:18:09
was built to handle fear. And once that
00:18:13
fear spread, nothing could stop it. The
00:18:15
Great Depression wasn't caused by one
00:18:17
bad policy or one greedy group. It
00:18:20
happened because everyone believed the
00:18:22
party could go on forever and nobody had
00:18:24
a plan for when it didn't. Every one of
00:18:27
these crashes looks different on the
00:18:30
surface, right? Some were fast, others
00:18:32
took years to unfold. Some were caused
00:18:35
by too much debt, others by inflation,
00:18:37
bubbles, or political shocks. But each
00:18:40
of these crashes happened because the
00:18:42
system kept pushing further than it
00:18:45
should have. Too much leverage, too much
00:18:48
trust in bad models, too much money
00:18:50
chasing shortcuts. And we're seeing some
00:18:53
of those same signs again. Asset prices
00:18:56
are rising faster than earnings. Debt
00:18:58
levels are at all-time highs.
00:19:00
Speculation is back. Meme stocks,
00:19:03
overhyped tech, record credit and credit
00:19:06
card debt. and underneath it all, a
00:19:09
belief that this time it'll be
00:19:11
different. But we might just be entering
00:19:13
into that find out phase. Thanks for
00:19:16
spending some time with us today,
00:19:17
Aluxer. We hope you found this valuable.
00:19:19
We'll see you next time. Until then,
00:19:21
take
