A DERIVATIVE SCANDAL, NOT A DEBT CRISIS:

Since the days when I watched those repossessions, I have learned more about depressions, particularly in the United States. I now know that America has seen numerous periods of financial decline and panic where consumer debt was the most important failed asset.

Panics are not just about the financial health of borrowers. Panics have always been about debt and doubt. America's first panic in 1792 had everything to do with foreign lenders' doubts about Americans' ability to subdue Indians who blocked westward expansion. Recovery came when European investors judged New England smugglers to be safer borrowers than French revolutionary assemblies or Saint Domingue slaveholders and put their money back into American banks.

The pattern would continue throughout the 19th century. An economic boom after 1815 was conceived in a British scheme to sell woolen coats to Americans on credit. The panic came in 1819 when trade negotiations between America and Britain failed, smashing the market that borrowers used to pay back lenders. In the 1830s, British banks with too much cash bet on a speculative bubble in American cotton plantations; British and American banks went bust when the Bank of England doubted slave owners' ability to pay. The panic of 1857 resulted from English doubts about whether American railroads had clear title to Western lands and whether cash-strapped farmers on railroad property would pay off their mortgages.

And while cheap exports from American farmers contributed to the international panic of 1873, the crash started in Vienna and sloshed onto American shores when the Bank of England raised interest rates. The panic of 1893 was largely a byproduct of a sudden drop in sugar-tax revenues from Cuba, and it climaxed when Europeans doubted if American borrowers would repay their debts in gold. Finally, in 1928, Americans' doubts about dollar loans to consumers in Germany and Latin America seized up international bond markets and laid the groundwork for the crash of 1929 and the depression that followed.

In each case, lenders had created complex financial instruments to protect themselves from defaulters like the ones I watched from the car. And in each case, the very complexity of the chain of institutions linking borrowers and lenders made it impossible for those lenders to distinguish good loans from bad.

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