In the years following the Great Recession - the global downturn emanating from the US subprime mortgage collapse in 2007 - competing narratives trying to explain the crisis have emerged from professional and layman circles alike. A loose consensus storyline describes a chain reaction triggered by the unwinding of excessive debt levels accumulated by US households following the implosion of a speculative bubble in the real estate market.
As property values began to decline, the equity cushion allowing highly indebted homeowners to maintain robust consumption levels evaporated, undermining economic activity and triggering a slump in growth. The mass ownership of opaque and often loosely regulated financial instruments linked to home prices by large financial institutions compounded the problem. When the prices for these instruments followed real estate values downward, a rush for cash to cover losses metastasized into a global credit crunch and... READ MORE