Our collective economic tragedy leaves at least two beneficiaries in its wake: expert financial writers and financially literate readers. Readers do not lack for abundant material to digest on the financial crisis of 2008 and its origins. Some of the volumes are already legendary. They include Michael Lewis’s evocative The Big Short, Simon Johnson and James Kwak’s metaphorical 13 Bankers, Paul Krugman’s sobering The Return of Depression Economics, Kenneth Rogoff and Carmen Reinhart’s centuries-spanning This Time Is Different, Andrew Ross Sorkin’s Too Big to Fail, Robert J. Shiller’s The Subprime Solution, and George Soros’s rather ethereal The Crash of 2008 and What It Means.

One reason for perusing all of these books is that doing so offers a lesson in cultural anthropology. It exposes the reader to a bewildering indeterminacy, with manifold readings of the same facts. There are as many glosses on the crisis as there are chapters in these tomes. Their culprits range widely: from the conspiratorially political impulse to deregulate to the contingently historical structure of modern finance; from the inescapable psychological limits of human learning and ignorance of “black swan” events to the profoundly cultural obsession with trading and selling volume, and with housing, finance, and profit itself.

This emergent literature on the crisis has worrisome limits. One is the tendency of authors to exploit the crisis to reaffirm pre-existing views, neglecting the opportunity to scrutinize models of regulation that have been newly legitimized by our collective tragedy. Would an intact Glass-Steagall law, the New Deal-era legislation regulating banks that was repealed in 1999, really have prevented the catastrophe, or was stronger medicine necessary? Would relatively coordinated state attorneys general, unencumbered by pre-emption, truly have fixed on the perils of subprime lending in California, Florida, and Nevada?

A deeper failure lies in the insularity of so many of the accounts, focusing on the world of systemic finance while barely glancing at the household finances undergirding that realm. Systemic financial risk comprises, roughly, institutions lending to and investing in other institutions, whether publicly (the stock market) or privately (private equity, over-the-counter derivatives). The realm of consumer finance involves those debt instruments in which households invest (mortgages, auto loans, credit cards, and other consumer loans). Unlike so many past financial crises, the crisis of 2008 was rooted in a spectacular, global decline in the price of a single commodity: housing. This fact is clear in all of the recent books, and yet its recognition only takes us so far. Market and regulatory failure in real estate cannot provide all of the explanation for the crisis. Real estate bubbles come and go, after all. No nationwide, one-way price escalator for land has ever prevailed for long in America. Serious crises have afflicted local and regional housing markets (Florida in the late 1920s and 1930s), commercial real estate (New York in the postwar era), and agricultural tracts (the 1890s, the 1920s, and the 1980s). So why did this real estate bubble take down Wall Street with it? And what can we learn from the carnage?

The critical and oft-neglected fact of the crisis rests in the deep connections between the worlds of consumer risk and systemic risk. These connections are both the central metaphor and the driving analytic framework for a perceptive new book by legal scholars Kathleen Engel and Patricia McCoy. As its title suggests, The Subprime Virus describes the infectious spread of bad credit, which vaulted from the consumer realm to the systemic realm. It traveled from places like Florida, Cleveland, and Las Vegas to governments and banks in Iceland and Charlotte, North Carolina, and on Wall Street.

Engel and McCoy are uniquely situated to provide this analysis. Engel is a bankruptcy law scholar who recently moved from Cleveland-Marshall College of Law (where she documented the housing downturn in Cleveland with ethnographic insight) to Suffolk University. McCoy is a professor of finance law at the University of Connecticut and now assistant director for home equity and mortgage markets at the new Consumer Financial Protection Bureau. They combine legal understanding of the really significant changes (and non-changes) in federal law with a shrewd grasp of the individual narratives and aggregate statistics of the housing crisis. (I will placehold, for another time and another essay, the fact that the most enlightening and underappreciated analysis in the years before and after the crisis seems to have been done by women, both as policy-makers—Sheila Bair, Brooksley Born, Elizabeth Warren—and as authors—Engel and McCoy, Susan Wachter, Warren again.)

Engel and McCoy open and close their volume on the gritty streets of Cleveland. The late 1990s offered some hope for Ohio’s most populous city, as they did for other rusting industrial centers. Long-stilled factories began to hum again and, in that more equitable boom of the Clinton years, real money began to line the pockets of the working class. But just as Cleveland’s working families surfaced for air, so too did a slew of predatory loans emerge, with mortgage brokers going door to door to lure homeowners into refinancing on unsustainable terms. “We could not fathom,” write Engel and McCoy, “why lenders would make loans that borrowers could not afford to repay. Foreclosures yield about fifty cents on the dollar. So why would lenders do business when the endgame was foreclosure?”

McCoy and Engel link Cleveland’s story to the story of Washington, the story of Wall Street, and the story of the global financial world. The Subprime Virus narrates the rise of the subprime loan market, and shows how the fee-based system of lending makes subprime risks everybody’s business, even though most investors were unaware of those risks. The two critical institutions in America’s twenty-first century financial pathology were subprime loans and securitization (in essence, the practice of pooling and then selling various types of debt, like mortgages). In both cases, a fee-based incentive system riveted lenders’ attention on maximizing the number of deals they cut. These incentives led mortgage firms to pump up housing sales and the number of refinancings. They also led national banks like Washington Mutual (WaMu) into subprime and other shady loans; a WaMu CEO described pay-option loans as the company’s “flagship product,” while an underwriter for the company remarked, “At WaMu it wasn’t about the quality of the loans; it was about the numbers. They didn’t care if we were giving loans to people that didn’t qualify. Instead, it was how many loans did you guys close and fund?” In turn, fee-based compensation led banks and traders to bundle loan contracts together into mortgage-backed securities and then attempt to sell the bundle as quickly as possible. The overwhelming fixation on fees meant that sellers and banks were making more money the more transactions they completed.

Whereas subprime loans provided the disease, securitization created the network of risk whereby the virus could infect a much larger system. Among large banks, securitization rendered global finance ever more dependent upon the vast pool of mortgage-backed capital. Because this capital was premised upon expectations about future mortgage values, securitization permitted lenders to think that bad risks could be leavened by bundling them with other mortgages, and then passed on to the balance sheets of other financial institutions. Lending standards based upon fiduciary duty and sober forecasts gave way to imperatives for high turnover and eroded standards, and few if any bothered to question the fundamentals of the boom. “With no one caring about the harm to borrowers, to society, or even to themselves,” Engel and McCoy write, “subprime lending and subprime securitization descended into a Hobbesian nightmare.”

Where was government in all this? Regulators such as the Office of Thrift Supervision (OTS) and the Office of the Comptroller of the Currency (OCC) might, in theory, have restrained the animal spirits. Yet they were infected by the same combination of dependence on fees and efficient market assumptions that stupefied mortgage lenders and large banks. The OTS and OCC are funded by fees charged to the banks they regulate; the more banks under their umbrella, the larger their budget. The OTS in particular depended heavily upon fees from WaMu—the bank’s assessments accounted for about one in eight of the agency’s operating budget dollars. More generally, the Bush-era appointees to these agencies starkly limited the reach of regulations and discouraged robust monitoring of banks and lenders.

If there is a representative culprit in the infective crisis, it is the OCC. The OCC was created in the Civil War era to charter and supervise national banks; in theory, the OCC polices banks and enforces lending standards. In gestures that bespeak an overwhelming “tunnel vision” and abiding “hubris” (as Engel and McCoy put it), Commissioner John Dugan limited his own agency’s capacities, advertised lax enforcement standards to lenders and banks everywhere, and aggressively undermined the attempts of states to police imprudent and abusive lending. Dugan simplistically latched on to efficient markets hypotheses without appreciating the nuance of the assumptions and models underlying them. And along with other Bush Administration appointees, he issued broad pre-emption directives that asserted the supremacy of federal agency rulings over those of the states, which were frequently more stringent. These decisions sidelined state regulators and provided an open invitation for banks to change their own legal status to become federally regulated entities.

The Federal Reserve was less aggressive in pre-emption, but it had surrendered its vigilance to quantitative modeling. Some Fed officials, like the late Edward Gramlich, raised alarms about subprime lending. Yet more than with any other agency, the distance between what the Fed did and what the Fed could have done is key to understanding the crisis. The communications and speeches of Fed leaders are as important as their legal enforcement actions, and the Fed’s cheery disposition toward the subprime and securitization booms was easily as important as its limp oversight of Truth in Lending Act standards. Alan Greenspan, his vision and judgment clouded by a Randian haze, repeatedly championed the subprime boom. Underlying subprime loans, Greenspan thought, were credit-scoring models of sufficient depth that lenders could “efficiently judge the risk” of subprime applicants. Had the Fed been more stringent, the effect on the mortgage market—and the economy—would have been dramatic, in part because of the accompanying signal of its vigilance to other agencies. The Fed’s significance follows partly from its size, but also from the maniple worn by its leadership, the explicit and implicit status that makes viral its claims and moves.

In their discussion of regulatory failure, Engel and McCoy err in too easily absolving the Clinton Administration. The authors consistently draw significant distinctions between passable, sufficient regulation under Clinton appointees and the radical, hubristic departures under the Bush Administration. Yet the sum total of changes under Clinton—large-scale swaps deregulation, extensive “adhocracy” of Fannie and Freddie, the Financial Services Modernization Act of 1999 (that undid Glass-Steagall), the Administration’s acceptance of efficient markets hypotheses—along with his warm relationship with Wall Street and embrace of Greenspan give us ample to reason to lay some blame at his feet and assert that the failure was bipartisan. Surely, the Bush Administration pushed deregulation to new levels in the early twenty-first century, but there were shared assumptions across the parties of the self-correcting capacities of financial markets, and the role of securitization in this self-correction.

This shortcoming aside, Engel and McCoy have provided, along with Georgia Tech housing scholar Dan Immergluck in Foreclosed, the best account of the mortgage market roots of our financial collapse. Perhaps the most redeeming feature of their narrative is that it redirects attention and analysis to “consumers”—that is, the middle and lower classes. The authors focus some badly needed attention on the human carnage wrought by the collapse of the mortgage market itself. And they reveal the many crossfire casualties of the housing collapse whose stories have eluded a thorough telling: renters of foreclosed properties who were displaced immediately and unexpectedly when their landlords went belly-up; people like Cuyahoga County treasurer Jim Rokakis, whose anti-predatory-lending ordinance was struck down by the courts via pre-emption, and who then watched his county implode and his own family home in Cleveland be foreclosed. There are searing images and narratives from post-industrial Cleveland—boarded-up properties with condemnation notices, police detectives with guns drawn as they scout the ground floor of abandoned homes for squatters.

There is no getting around the deep connectivity of modern finance. Securitization is here to stay, and it has promise that can and should be harnessed. The ability to combine consumer loans into a larger instrument for selling to investors worldwide is a vehicle for diversification of risk. And in principle (and often in practice), the capital enabled by this diversification of risk can create meaningful economic and social opportunities for middle- and working-class families, for the poor, and for minorities.

Yet appreciating the promise of securitization does not entail surrendering the prospect of its regulation. Nor should we purchase wholesale the assumptions and ideologies that accompanied securitization’s meteoric rise. Precisely because securitization enables more consumer lending, the governance of consumer finance must keep up in ways that constrain financial predation and imprudent underwriting. Governments in the United States and worldwide must regulate consumer loans and their securitization. And they must do so in a way that constitutes a new market—one that is more transparent, more symmetric, more just, and more inspiring of sober, long-term consumer confidence.

A world of deep connectivity requires a different kind of regulation. What we are not looking for, as Engel and McCoy imply, is a streamlined, Weberian-Progressive administrative model where there is one-to-one division of problems among agencies. As the Berkeley political scientist Martin Landau argued in a classic 1969 essay, there is use for redundancy and overlap when the stakes are high and regulatory failure is catastrophic. And as Scott Page has argued in his insightful volume The Difference, complex problems are best solved when there are people with diverse lenses and ideas at the table. Redundant regulation imagines a world in which there are multiple (and divergent) “looks” at the same problem. In finance, redundancy might entail several organizations examining the same financial behavior—one agency from the standpoint of bank solvency and aggregate risk, another agency from the standpoint of consumer protection, one group from the standpoint of mathematical finance, another group from the standpoint of psychology or anthropology. In making the case for the new Consumer Financial Protection Bureau created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (and first proposed by Elizabeth Warren in this journal back in 2007), Engel and McCoy imply that banking regulators focused on the solvency of the institutions they regulate are going to be inattentive to the concerns of consumers. The case for redundancy is especially compelling when viral risk bubbles can arise and infect the regulators as well as the lenders and consumers.

Redundancy alone, I think, offers a powerful rationale for rejecting federal pre-emption, but there are others. Pre-emption creates a system in which an already viral pattern of risk can get more viral—banks seek federal charters instead of state charters, then institutional size and connectivity increase, and regulatory burdens grow on the agencies least likely to tackle them. Uncertainty—not merely risk-based uncertainty inherent to the financial instruments themselves, but uncertainty due to lack of transparency, the systematic “shrouding” of consumer financial products by lenders—can multiply all the more quickly. Hence under deep connectivity, Engel and McCoy argue (and I agree), we need a regulatory regime that both heightens transparency and reduces the opportunities for regulatory arbitrage.

The viral metaphor is helpful in another important way. If financial risk is viral under deep connectivity, then robust financial regulation will depend upon a form of “financial epidemiology.” We have a financial system in which lenders have a lot more information than borrowers, and robust regulation will aim to reduce those asymmetries. It is critical for regulators to be armed with the kind of data and analytic resources—including qualitative and ethnographic techniques as well as statistical and informatics prowess—that can help them keep up with banks and lenders.

Thankfully, many of these lessons have been learned, and many are embodied in the Dodd-Frank Act. Dodd-Frank gives the new Consumer Financial Protection Bureau vast resources, and also creates an Office of Financial Research in the Treasury Department. The statute creates a regulatory floor (below which states cannot pass), but allows states to experiment with bolder regulatory strategies; the pre-emption of the Bush era has been cast away. And combined with the Obama Administration’s open data and transparency initiatives, Dodd-Frank will empower independent researchers, third parties, and state attorneys general to assist the federal government in monitoring and enforcement efforts. As readers will know, of course, the very form and funding of this agency are under assault from congressional Republicans, who have announced that they will not vote to confirm Richard Cordray as director until the consumer protection planks of Dodd-Frank are rewritten.

As followers of financial reform know all too well, much of what follows depends on the actions that regulators take: rulemaking, interpretation, enforcement. So the lessons of the subprime virus need continual repeating. The people implementing Dodd-Frank will need to be aware of the profound and nuanced links between the worlds of systemic and consumer finance. Perhaps most of all, those agencies will need to be humbler and more skeptical about the promise of securitization, about the unproven gospel of “financial innovation,” and about the reach of the models used by regulators and investors alike over the past three decades. Since, as Engel and McCoy recognize, “local officials and individuals simply do not have the power to safeguard themselves alone,” it is up to regulators to ensure that “what’s good for Wall Street is good for Main Street too.” Achieving Engel and McCoy’s aspiration will require thinking and acting outside the confines of a single agency or a single discipline.