Debt Spiral is the only book you need to understand the financial crisis of 2007-2009. Excessive debt and its twin, excessive financial leverage, were the culprits, but that is a superficial answer. What caused the excessive debt and leverage is the story. It is a story that goes back to laws enacted in the Depression and progresses through seven decades of public policies that meant to do right but ended up setting the stage for the most recent financial crisis. Macroeconomic imbalances, including federal budget deficits and adverse trade flows set the stage. Federal Reserve Board policies pumped up the boom. Complex financial instruments backed by sub-prime loans helped to create a housing bubble. The rating agencies turned the switch on the whole shebang. When the bad loans came to light, the public and institutions quickly lost confidence in over-leveraged banks, and the financial world ground to a halt.