2. Subprime

 But to explain how thiscould trigger a financial crisis, with bank failures spreading panic and a credit crunch across the world, there is one crucial thing to add: Real estate is not only the largest single form of wealth, it is also the most important form of collateral for borrowing. It is mortgage debt that both amplifies the broader economic cycle and links the house price cycle to the financial crisis. 
Between the 1990s and the outbreak of the crisis in 2007, American housing finance was turned into a dynamic and destabilizing force by a fourfold transformation -- the securitization of mortgages, their incorporation into expansive and high-risk strategies of banking growth, the mobilization of new funding sources and internationalization. All four of these changes can be traced back to the transformation in world economic affairs between the late 1970s and the early1980s in the wake of the collapse of Bretton Woods.
To unleash the final phase of the boom, it needed one last ingredient. Someone had to be interested in buying the hundreds of billions of dollars in securities that were being produced. 
This points to the third historic transformation that made possible the 2000s boom, a change not on the supply but on the demand side: the surging demand for safe assets and the mobilization of institutional cash pools for mortgage finance.
Funds from money market cash pools were channeled into financing the holding of large balance sheets of MBS. The largest mechanism for funding mortgage holdings was asset-backed commercial paper (ABCP). The vehicles for managing this operation were so-called structured investment vehicles(SIV), legal entities provided with a minimum layer of capital by their sponsors, "but otherwise separate from the balance sheets of their parent banks. 
With billions of private label MBS and ABS on the balance sheet, these holdings were funded from money market via SIV by issuing ABCP.
Typically, an ABCP vehicle would hold a portfolio of securities with maturities of three to five years and would fund those securities by selling commercial paper repayable between three months and as little as a fewdays. 
This SIV-ABCP model involved a degree of maturity mismatch.