Study of various financial crisis in great empires and modern history

[Ex Pat]

Hello, I spent some time challenging my IPS with Perplexity and I ended up studying great financial crisis, losers and winners.

I am a noob, so I found this useful, maybe someone benefits as well.

I wanted to share the result with the community also to challenge it, in case it made mistakes.


Financial Crises Across 500 Years: Lessons for FIRE Investors

Core Lesson: Diversified investors who stayed calm got rich. Concentrated savers who panicked got wiped out.

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8 MAJOR CRISES ANALYZED

1. Spanish Empire Bankruptcies (1557-1596)
Philip II defaulted 4 times in 40 years. War debts = 60% GDP.

Results: Collateralized bonds: 55-70% recovery | Uncollateralized: 42% recovery | Gold: 100% preserved | Banking houses: TOTAL LOSS

Who got rich: Genoese bankers (replaced Fuggers), gold holders, landowners
FIRE Lesson: Government bonds CAN default. Gold + real assets protected wealth.

2. South Sea Bubble (Britain, 1720)
Stock speculation: £100 → £1,000 → £185 in 6 months (-80-85%).

Results: South Sea stock: -85% | Gov bonds: Stable | Gold: Preserved | Leveraged investors: TOTAL LOSS

Who got rich: Early sellers, bondholders, cash holders who bought confiscated estates
Who lost: Isaac Newton (-£20K), late buyers, leveraged speculators
FIRE Lesson: Speculation + leverage = disaster. Bonds + cash = safety.

3. Dutch Credit Crisis (1772-1773)
Banking collapses, "subprime" plantation loan bundles crashed 60-80%.

Results: Banking houses: TOTAL LOSS | Plantation bundles: -60-80% | Gov bonds: Stable/gain | Gold: Preserved

Who got rich: Hope & Co (survived), bondholders, cash deployers
FIRE Lesson: "Innovative" financial products = hidden risk (like 2008 MBS).

4. Ottoman Empire Default (1875)
Empire defaulted on 214.5M pounds. European creditors seized 25% of tax revenue.

Results: Ottoman bonds: -50-70% | Gold: Preserved | European bonds: Safe

Swiss Lesson: Emerging market bonds = high risk. CHF/gold = safety.

5. Weimar Hyperinflation (Germany, 1921-1923)
Mark went from 4.2/USD to 4.2 trillion/USD.

Results: Cash (marks): -99.9% LOSS | Bonds: -90-97% | Stocks: Preserved 70-80% | Gold: +200-300% | Foreign currency (CHF): +1,000,000%

Swiss Lesson: CHF holders 100% protected while Germans wiped out.

6. Great Depression (1929-1939)
90% stock crash, 9,000 bank failures, 20% of deposits lost.

Results: Bank deposits (uninsured): TOTAL LOSS | Gov bonds: +15-20% | Stocks: -90% → +300% recovery | Gold: +40-50%

Who got rich: Rockefeller ($500M → $1.4B), Buffett's father (bought 1932), diversified holders

7. Asian Financial Crisis (1997-1998)
70-80% stock crashes in Asia. Switzerland unaffected.

For Swiss Investor: CHF deposits: +5% | Swiss bonds: +8-12% | Global diversified stocks: -15-20% | Gold: +15-20%

Who got rich: Global diversifiers (lost only 15%), Buffett (bought at -70%, made 500%+)
Swiss Lesson: CHF = safe haven. Global diversification limited damage to -15%.

8. 2008 Global Financial Crisis
50-57% stock crash, 40% real estate crash.

Results: Insured deposits: 100% safe | Gov bonds: +15-20% | Stocks: -50% → recovered 2013 | Gold: +25%

Who got rich: Buffett ($15B deployed → $45B by 2015), Blackstone (bought foreclosed homes at -40%)
Swiss Lesson: UBS bailed out, zero depositor losses, esisuisse worked.

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THE UNIVERSAL PATTERN

What ALWAYS Kills Wealth:
1. 100% in one asset
2. Panic selling at bottoms
3. Over-leverage
4. Concentration risk
5. No emergency cash

What ALWAYS Creates Wealth:
1. Diversified portfolio (stocks/bonds/gold/cash)
2. Emergency buffer (6-18 months)
3. Staying calm through crashes
4. Buying the dip
5. Long-term perspective (20+ years)

Historical Results:

Investor Type	Spanish 1557	South Sea 1720	Weimar 1921	Depression 1929	Asian 1997	2008
100% gov bonds	-42-58%	Safe	-90-97%	+15-20%	+8-12%	+15-20%
100% stocks	N/A	-80-85%	+70-80%	-90%→+300%	-70-80%	-50%→+200%
100% cash	Safe	Safe	-99.9%	-20% LOSS	+5%	Safe
100% gold	Safe	Safe	+200-300%	+40-50%	+15-20%	+25%
Diversified	-10-20%	-15-25%	-20-30%	-30%→+200%	-15%	-25%→+150%

Key: Diversified portfolios NEVER lost more than -30%, always recovered. Single-asset portfolios wiped out in multiple crises.

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SWITZERLAND'S 100-YEAR SAFETY RECORD

Crisis	Switzerland
Weimar 1921	CHF strengthened massively; Swiss 100% protected
Depression 1930s	No bank failures; CHF safe haven
Asian Crisis 1997	CHF +5%; Swiss stocks only -5%
2008	UBS bailed out; zero depositor losses
Credit Suisse 2023	Depositors 100% protected

Current Protection: Esisuisse 100K CHF per bank | Zero defaults in modern era

Caveat: Safe from bank failure, NOT from inflation (2-3%/year)

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FIRE STRATEGY IMPLICATIONS

Recommended Allocation:
• 60-80% Stocks (global: VT/VWRL) - Survived Weimar, Depression, 2008 (+200-300% recovery)
• 10-20% Bonds (stable gov: CHF/USD) - Safe haven in crashes (+15-20%)
• 5-10% Gold - Survived ALL 8 crises (never lost value)
• 5-15% Cash/MMF - Emergency buffer + crash deployment

What Each Asset Protects Against:

Asset	Protects Against	Vulnerable To
Stocks	Hyperinflation, currency collapse	Market crashes, bubbles
Bonds	Stock crashes, deflation	Hyperinflation, defaults
Gold	ALL crises (8 for 8)	Stable periods (no growth)
CHF Cash	Bank failures, deflation	Hyperinflation, low returns

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KEY TAKEAWAYS

1. Gold Survived Every Crisis (8 for 8)
Spanish, South Sea, Dutch, Ottoman, Weimar, Depression, Asian, 2008 - Gold NEVER lost value.
Conclusion: 5-10% gold = mandatory insurance.

2. Diversification Saved Everyone
Never lost more than -30% in any crisis. Single assets wiped out multiple times.
Conclusion: Never 100% in one asset. Ever.

3. CHF = World's Safest Cash
100% safe in all modern crises (1920s-2026). Zero depositor losses.
Conclusion: Keep 6 months of expenses in CHF with esisuisse protection.

4. Time Horizon Matters
All crashes recovered: Spanish (3-5yr), Weimar (2yr), Depression (25yr), Asian (8yr), 2008 (5yr)
Conclusion: FIRE needs 20+ years. All crashes become buying opportunities.

5. Who Gets Rich
Emergency cash holders + dip buyers + diversified + patient = wealthy after every crisis
If pursuing FIRE, you ARE these people.

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FINAL VERDICT

500 years of data proves:
• 100% one asset = destroyed in multiple crises
• Diversified + patient = wealthy after ALL crises

For Swiss FIRE investors:
• CHF deposits = safest cash (100yr record)
• Global diversification (VT) = regional protection
• 5-10% gold = hedge against ALL crisis types
• Esisuisse = zero deposit losses

 

[gaijin]

Thanks for sharing. Nothing too surprising, it's confirming many FIRE principles.

Two critical remarks: I think it's hard to draw any conclusions based on situations that occurred before 1900. Times were substantially different before 1900. Also, I'm not sure about the recommendation of 10% gold. Yes, gold recovered, but so did a diversified portfolio of stocks and bonds.

Current Protection: Esisuisse 100K CHF per bank | Zero defaults in modern era

The crash of the Spar- und Leihkasse Thun in 1991 destroyed cash of many private people in Switzerland. The 100k CHF insurance was a consequence of this crash. Also, the depreciation of Credit Suisse's AT1 can be seen as a default.

 

[Baptiste Wicht]

Thanks for sharing. This is interesting.

I would say indeed that this is expected. If you want to be safe, you add some bonds to the portfolio. I am not that convinced that gold is a mandatory insurance. It can smooth out a portfolio, sure, but I would not call it mandatory.

And I would also be careful about the esisuisse protection. It's nice for sure, but in case a very large bank defaults (and the government does not intervene), it will not cover all customers.

Swiss Lesson: UBS bailed out, zero depositor losses, esisuisse worked.

I think that's a big overstatement. UBS was bailed out by the government with the SNB. esisuisse would only intervene if it had failed, in which case it could not have covered all deposits.

Swiss Lesson: CHF = safe haven.

Yes, but our safe haven is a double-edged sword. If you have CHF, it's great. But if you have foreign currencies, it is not so great.

 

[Ex Pat]

Recently I used a different lens: the time to recover in historical stock market crashes from the past 100 years, and also how long it took for the crash to reach the bottom.

Crisis	Peak-to-Trough	Duration to Bottom	Recovery Time
Great Depression 1929	-86%	34 months	25 years
Dot-Com 2000–2002	-49%	685 days	13 years
2008 Financial Crisis	-57%	407 days	4 years
COVID 2020	-34%	32 days	6 months
Average bear market	-33%	406 days	varies

 

[Baptiste Wicht]

It's interesting that recent crashes went much faster for recovery. Even the financial crisis only took 4 years. The COVID bubble makes sense since people freaked out and then realized the world was not going to end.

 

[Ex Pat]

The COVID bubble makes sense since people freaked out and then realized the world was not going to end.

Yes. The COVID bubble was indeed psychological (by pandemic) rather than systemic.

That said, the speed to recover was mainly due to massive governmental fiscal + monetary intervention at an unprecedented speed & scale.
For example, in Spring 2020, the Federal Reserve started buying Corporate Junk Bonds (unprecedented before).

Metric	2008 Financial Crisis	2020-2021 COVID Response	Multiplier
Total Fiscal Stimulus	$900B-$1T (TARP, ARRA)	~$5.6 Trillion (5+ laws)	~6x Larger
Fed Balance Sheet Exp.	+$1.3T (in 1 year)	+$4.8 Trillion (in 2 years)	~3.7x Larger
M2 Money Supply Growth	~10% (Peak YoY)	~27% (Peak YoY)	Historical Record
US Budget Deficit	~10% of GDP	15% (2020) / 12% (2021)	Post-WWII Record

To sum up: the US government spent $5.6 trillion to convince people the world wasn't ending.

It's interesting that recent crashes went much faster for recovery. Even the financial crisis only took 4 years.

Fact: when The Great Depression happened, banks weren't regulated - around 9,000 banks failed (40% all banks in the US back then). Around 20% of all households were left without access to their money.

That said, the reason 2008 and 2020 recovered so fast is that the US government printed trillions. This could be done because the US government had a clean balance sheet to intervene. Nowadays, the US government is under much higher fiscal pressure. Is it less likely that during the next crisis, there will be the same government intervention.

This led me to look into the "warning signs" for each crisis in the table below.

Category	Indicator	1929	2000	2008	Current (Apr 2026)	Current Status
Valuation	Shiller CAPE	~30x	~44x	~27x	37x – 39x	Elevated
	Buffett Indicator	~110%	~150%	~105%	180% – 210%	Historically High
	S&P 500 P/E (TTM)	~22x	~28x	~21x	24x – 28x	Above Avg
Speculation	Private Credit	N/A	Low	~$1.2T*	$1.3T	Monitor / Watch
Sovereign	Debt-to-GDP (US)	~16%	~55%	~64%	122% – 125%	Structurally High
	Interest / Spending	Low	~13%	~8%	14% – 19%	Rising Fiscal Pressure
	Yield Curve	Inverted	Inverted	Inverted	Post-inversion steepening	Cycle Signal
Macro	CPI Inflation	Deflation	~3.4%	~3.8%	2.4% – 3.3%	Sticky
	Unemployment	~25%	~4.0%	~5.8%	4.0% – 4.5%	Stable
Private	Household Debt	High	Mid	~130%	~95% – 100%	Resilient
	Bank Leverage	High	Mid	~40:1	~12:1 – 15:1	Regulated

Valuation Context
Indicators like the Buffett Ratio (~200%) and Shiller CAPE (~38x) are clearly at the high end of historical ranges.
While this isn't a "timer" for a crash, it mathematically points to lower expected returns over the next 10 years compared to the previous decade (this is what Bogle warned back in 2017 in his book, but the AI industry changed the situation and the stock market kept growing up until now).

That said, we are not in the Dot-Com-like situation:

Aspect	2000 Dot-Com	2026 Tech
Revenue Base	Negligible vs. billions in cap wikipedia	Massive (e.g., MSFT $70B/quarter)
Profitability	Losses universal	Record profits
Funding	VC burnout	Self-funded cash cows
CAPE Context	~44 peak	~38 now

New risk : Index Concentration.
In 2000, the top 10 stocks made up ~27% of the S&P 500. Today in 2026, they make up over 33%. If even one of them (e.g., Nvidia or Microsoft) has a "flat" year, the entire index drags.

Risky (unregulated) debt

Even if the banks are healthy, there's $1.3T in private credit ("Shadow Banking"), which is not regulated. Moody projection: $2T by end of 2027. Back in 2008, the Subprime Mortgage market was at $1.2T.

I don't know how risky it is, but I can give you a quote from this Federal Reserve paper : "Due to their private, largely unregulated nature, public disclosures or regulatory filings by private credit vehicles are generally not available."

Also, even if on average household debt is fine (and High-earners are spending), the bottom 40% in the US are hit by "Sticky Inflation", leading to credit card interest rates (~22%), which can affect consumption.

Risk Transition:
- The 2000 Dot-Com crash was a 'valuation' event—it hurt investors, but the underlying government was strong.
- The 2008 GFC was a 'banking' event—it broke the system, and the government had to save it.
- Today, the risk has moved to the Sovereign level and unregulated private lending. We have 2000-level valuations, but we no longer have a 2000-level government balance sheet to catch us if we fall. This is why Dalio said "the next crisis won't come from banks, it'll come from governments."

Conclusion
Due to the Valuation signals, we can expect lower returns from the US stock market in the future, unless AI will help GDP grow faster than debt (and some laws will be passed to make that growth helpful also to the US budget, which is based on human salaries, mainly).

And if there is an AI bubble to burst (this is still to be clarified), or if there will be liquidity crisis due to unregulated private debt, or a Black Swan event like covid, the US government won't be able to bail out that easily - they're currently spending 18.6% of total federal revenue on paying interests on its own debt. This is the first time in US history that interest payments have eclipsed the Defense Budget.

 

[Ex Pat]

To add to my last post from April - the Casual Finance youtube channel is a good place to understand the various things happening in the economy.

1. This Stock Market Boom Is Setting Up Something Ugly​

• Core Topic: Record equity allocations, margin debt, and stock market valuation extremes.
• Summary: Analyzes how American investors have pushed equity allocations to historic highs, mirroring past pre-crash peaks. It explores the risks behind surging foreign stock ownership, high margin debt, and the broader macroeconomic fallout when the "wealth effect" reverses.
• My highlight: many investors choose to borrow to keep investing in the AI boom (margin debt). This debt makes the market fragile. The “wealth effect” refers to Americans having 34% of their wealth in stocks, and the stock market boom gives them the impression they have purchasing power, so they consume based on that impression rather than based on their revenues. As long as the stock market still goes up, US consumers are still gonna spend. A stock market fall will reflect instantly also in the consumption patterns, which will accelerate a possible recession.

2.The Money Squeeze That's Choking the Economy​

• Core Topic: Global interest rate cycles and tight credit conditions.
• AI Summary: Examines a wave of global interest rate hikes, analyzing how real interest rates spiked, how businesses and consumers are reacting to squeezed credit, and why aggressive monetary tightening risks draining liquidity across the board.
• My Highlight: The FED raised interest rates to slow down spending and borrowing in the economy, but this time, spending&borrowing comes from large private companies who don’t care about the rates. All these companies and funds will still invest large sums in the AI boom, irrespective of the FED raising interest rates. So the interest rates will only affect the population, without slowing down the economy.

3.The Stock Market Is Being Used as a Dumping Ground​

• Core Topic: Structural shifts in the IPO market and private-to-public tech/startup funding shifts.
• AI Summary: Explores how rule changes (like Section 12(g) updates) allowed major companies to stay private much longer, changing the nature of public markets so that retail investors often buy in only after the primary high-growth phase has already passed.
• My Highlight: this is very interesting for us. The JOBS Act (Jumpstart Our Business Startups Act), was signed into law in April 2012. From that point onwards, the rules that forced Microsoft, Amazon, Google, Nvidia and Meta to become publicly traded companies early in their growth stopped applying in 2012. Companies like Stripe, Open AI, Anthropic and Space X grew only based on private capital, as opposed to previous tech giants that allowed the public retail investors to benefit from their growth. What this means is that we should likely expect less returns from the S&P 500. Because of this law from 2012, doing simulations based on the past of the American market doesn’t make much sense.

4.The New American Housing Crisis Has Landed​

• Core Topic: Real estate market anomalies, high mortgage rates, and affordability.
• AI Summary: Looks at why median home prices continue to defy gravity despite mortgage rates hovering near 7%, evaluating inventory mismatches, new-build pricing gaps, and failing traditional economic rules in housing.
• My Highlight: People already having a house won’t want to sell it, because it would be more expensive to buy a new one (“rate lock”). The home builders cannot sell, because no one is buying.

5.America Is Walking Into Something It Can't Stop​

• Core Topic: Exploding national debt, budget deficits, and structural fiscal traps.
• AI Summary: Focuses on the compounding trajectory of U.S. sovereign debt, hitting multi-trillion-dollar annual deficits and massive daily interest payment obligations that standard political and fiscal tools can no longer easily reverse.
• My Highlight: while what this video points out may be true, as long as the US hold the world's reserve currency, they can always print more dollars and export inflation to the world. The US can make the world pay for its debt.

6. The World's Safest Market Is Breaking​

• Core Topic: The structural unravelling of the global bond market.
• Summary: Explores a quiet crisis unfolding in long-term government bonds as historical buyers step back and massive waves of sovereign debt must be refinanced at significantly higher interest rates.
• My Highlight: Due to various laws, pension plans in many countries were obliged to only buy bonds. Now laws change, and pension funds are moving away from bonds. The bond market becomes much more fragile than before because of that. We saw this in recent weeks when the borrowing cost for many developed countries spiked. That said, each country has its own specific situation which makes it more or less fragile. Japan's debt for example is mainly owned by the Japanese market - so they can handle it. This other video Which Rich Country Goes Bankrupt First? explains for each developed country how they can handle their debt.

7.It's Boring, But It's What Bursts the AI Bubble​

• Core Topic: Energy bottlenecks and power grid constraints on AI data centers.
• AI Summary: Demonstrates how physical and logistical limits—specifically electrical power, water, and power grid capacity—are becoming the ultimate ceiling for the AI sector, threatening to burst the investment bubble.
• My Highlight: The power grid is the limiting factor and it’s difficult to extend. Because of that, many AI datacenters rely on gas turbines, but even those take time to build. Because of these limitations, investors may lose patience in AI returns.

8.The AI Bubble Survives on $1.65 Trillion in Hidden Debt​

• Core Topic: Debt-financed AI infrastructure buildout and credit risk.
• AI Summary: Breaks down how tech hyperscalers and data center operators utilize creative, off-balance-sheet borrowing and credit structures to fund massive hardware buildouts, creating hidden systemic leverage.
• My Highlight: Magnificent 7 put 94% of their Capex into AI buildout this year, and started contracting lots of debt because they cannot fund the growth on their own. Oracle, one of the hyper scalers, has its bonds now rated at BBB- (close to junk). Even more, two American pension funds filed suits against Oracle for not being open about their financial situation. Meta is hiding its debt through intermediate firms that build the AI centers for them. The financial markets (Blue Owl, Black Rock) are heavily invested in AI.

9.The $2.5 Trillion Credit Wave Nobody Sees Coming​

• Core Topic: Private credit expansion and shadow banking system risks.
• AI Summary: Analyzes the explosive growth of private credit and non-bank lending, highlighting how Wall Street's pursuit of yield outside traditional regulatory oversight creates hidden contagion risks.
• My Highlight: what I saw in this video reminds me so much of the “The Big Short” movie about the financial crisis of 2008. But now it’s not banks and mortgages, it’s private credit and businesses.

11.The Economy's Booming… Just Not For Everyone​

• Core Topic: The K-shaped economic divide, consumer sentiment vs. headline data.
• AI Summary: Contrasts record-high stock indices and peak net-worth headlines with collapsing consumer sentiment, falling savings, and the millions of Americans sinking deeper into debt just to stay afloat.
• My Highlight: the gap between “haves” and “have nots” is widening. The US economy is not officially in recession because of the AI boom, but the actual people that live in the economy rely more and more on credit cards to buy food and groceries.

Anyhow, unfortunately all of these videos explain problems in the economy, but not actual solutions.