In 2008, the United States teetered on the brink of financial disaster. Unemployment looked to reach its highest levels in two decades source: Boston Globe. Homeowners defaulted on their loans in record numbers. Enormous investment banks that had been in business for more than a century and had endured the Great Depression faced collapse. The economy, in other words, was circling the drain. And all of it, every last part of this looming economic disaster, was due to a unique financial instrument called the mortgage-backed security.Mortgage-backed securities (MBSs) are simply shares of a home loan sold to investors. They work like this: A bank lends a borrower the money to buy a house and collects monthly payments on the loan. This loan and a number of others — perhaps hundreds — are sold to a larger bank that packages the loans together into a mortgage-backed security. The larger bank then issues shares of this security, called tranches (French for “slices”), to investors who buy them and ultimately collect the dividends in the form of the monthly mortgage payments. These tranches can be further repackaged and sold again as other securities, called collateralized debt obligations (CDOs). Home loans in 2008 were so divided and spread across the financial spectrum, it was entirely possible a given homeowner could unwittingly own shares in his or her own mortgage. In 2006 you could sell houses with a high profit, but that did not happen in 2008 the housing market in the United States was no longer booming. And it was the mortgage-backed security that killed it.Then, after the giant American investment bank, appear the second stage of this crisis with Lehman Brothers, went bust, total panic took hold. No one could borrow, except at extortionate rates. The global economy suffered a financial heart attack. That was only brought to an end when national governments injected hundreds of billions of dollars of new capital into the world’s largest banks and financial institutions in the autumn of 2008.But the banks were never properly purged of their bad debt. Their sub-prime mortgages were written down in 2008 and 2009. But these banks had also lent heavily to states on the European periphery such as Greece, Spain and Ireland. And that debt now looks like it might be as worthless as sub-prime mortgages. And once again investors are wary of lending to banks because they worry they might go bust. This is what is feeding fears of a second credit crunch.But this latest outbreak of panic comes with a dark twist. Cheap credit fuelled economic expansion in Europe and the US during the boom years. And now that the credit steroid has been removed, growth has stalled. Without growth, even the wealthiest nations will struggle to service their debts. Alarm about the scale of bad debt in southern Europe has combined with wider fears about the general sustainability of borrowing levels across the world. And the populations of stronger European nations such as Germany do not like the idea of guaranteeing the debts of their southern neighbours. As for growth, the policy cupboard looks bare. Interest rates have been slashed already. And there is a powerful lobby against further fiscal stimulus, even in those nations which could afford it. This unleashed a global recession, due to the distrust of the markets that little by little has been recovered but there are consequences of it.