Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

All told, if we focus on that section of the market that was truly a product of the bubble, by the summer of 2007, $5.213 trillion in private-label asset-backed securities had been issued—that is, MBS generated from unconventional mortgages and credit card, student loan and auto debt. Of this total, the most dangerous mortgage component, subprime mortgage MBS, amounted to $1.3 trillion. Though this was “only” 12 percent of the total American mortgage market, the $1.3 trillion had been produced in a single surge since 2003. Of the total sum of $5.23 trillion, more than $3 trillion had been placed with long-term investors and $700 billion were placed directly with investment funds or investment banks. But $1.173 trillion were held by banks that funded them off balance sheet by issuing ABCP. As a result, ABCP had become the largest short-term money market instrument for investors looking to park cash for less than three months. The market for ABCP was larger even than for the short-term Treasury bills issued by the US government to manage its cash flow. If there was a channel through which the crisis in real estate could ramify outward to unleash the global financial crisis, this was it—ABCP, the place where private label MBS met wholesale funding.