ABSTRACT
The Credit Crunch was triggered by mortgages: the risks of mortgage lending
were the root cause of many of the losses experienced during 2007 and 2008.
Therefore we need to look in detail at U.S. mortgages: how they are struc-
tured; who could borrow; and who could lend. This is important because it is
not just falling house prices that caused the Crunch. Rather it is a combina-
tion of falling house prices and risky lending. Other countries have suVered
house price falls recently (as we saw in the previous chapter with Spain and
Ireland). But their financial systems – while distressed – have not gone into
meltdown as a result. This is because European mortgage structures were not
as risky and European mortgages were not given to such a high proportion of
borrowers who would not or could not repay them33.
