why did the 2008 financial crisis happen inspite of banks having 85% insurance on deposits in U.S.?

Question

I read What Happened in 2008? which gives some idea and similar things are happening in India. Seems India's 2019/2020 is similar yet different as millions are educated unemployed. While I can understand people having losses who had mortage, what about those who didn't have any mortage or loans. Did they escape ? From what I have been reading 85% of the money invested in a bank account upto some agreed amount is insured. Although I don't know whether that 85% figure insured amount was agreed after or before the 2008 financial crisis.

At the end, my question is simple, did people who had no loans of any sort, did they escape the 2008 financial crisis, or were they also caught in unexpected ways ?

Answer 1

Yes, most of the loans were insured - this is called a credit default swap (CDS) that an insurance company insures a bank loan in case of a default (i.e. when a borrower cannot repay, the insurer pays the bank). Banks and insurance companies were making an unprecedented amount of money through this practice.

However, when the housing bubble burst, too many loans defaulted to the point that the insurance companies could not pay the banks. Then the banks were going bankrupt unless they were bought out. For instance, Lehman Brothers, which reportedly had relatively more mortgage-related assets, had to declare bankruptcy as the federal government or no other bank would bail it out. (words are that people in finance did not like Lehman Brothers which is one of the reasons why it was not bailed out)

The 2008 financial crisis (people now call it the Great Recession) froze all economic activities so virtually few were able to escape it.