At some point in the early months of 2007, the words “sub-prime mortgages” began to filter into the popular press. By the end of that August, they were ubiquitous. This small section of the high-risk, high-yield housing finance market in the United States sparked a global financial and economic crisis that would scar a generation. The stories that emerged to explain how this happened were the stuff of fiction or perhaps something even stranger. Banks booked mortgages to people with no demonstrable assets or income, at introductory rates that quickly reset to terms that only the most resilient of households could afford. By the time the borrowers defaulted, however, the banks had sold the mortgages to other investors using complicated securitization instruments that effectively hid the risks involved. The institutions left holding the bag were not only unaware of the dangers they faced but were completely unprepared for the consequences.

The sub-prime mortgage disaster sounds improbable after the fact and caught many by surprise from start to finish. It would be easy to assume, therefore, that the whole episode could be marked down to some horrible financial accident where the most dangerous financial market participants played with the most volatile financial instruments and nearly brought the whole advanced industrial global economy down with them. Indeed, it would be comforting if that were the case. Then all we would need to do is discipline the people and regulate the instruments.

Unfortunately, the forces that created the US sub-prime mortgage problem are not accidental; they are structural. Moreover, once you understand which are the structures involved, there is little mystery to why the crisis started in the sub-prime mortgage sector, why the epicentre was located in the United States, and why the securities created out of sub-prime mortgages found their way onto the balance sheets of financial institutions across advanced industrial economies. There is also no mystery why a crisis in the US sub-prime mortgage sector would bring the global financial economy to its knees.

This structural account is what Gregory W. Fuller brings to life in his analysis.