The American housing crisis isn’t over yet. The fallout from the subprime mortgage mess will continue to settle for months (or years). Though the various statistical models disagree on just how much further prices will drop before they hit bottom, most seem to indicate there’s another 10% to 20% left to go.

What exactly is the subprime mortgage crisis and how did we get here? That’s the question tackled this week by Chicago Public Radio’s This American Life.

This American Life generally focuses on quirky tales from the lives of average Americans. It doesn’t usually delve into investigative journalism or explore the nuances of modern economics. This week, however, in a show co-produced by the National Public Radio news division, TAL took a step-by-step look at what caused the subprime lending crisis. It’s complicated.

A special program about the housing crisis. We explain it all to you. What does the housing crisis have to do with the collapse of the investment bank Bear Stearns? Why did banks make half-million dollar loans to people without jobs or income? And why is everyone talking so much about the 1930s? It all comes back to the Giant Pool of Money.

This program explores the various players, the causes, and the consequences of the subprime mortgage crisis. And it all starts with the “global pool of money”. In the early 2000s, there were $70,000,000,000,000 ($70 trillion) of global capital looking for low-risk, high-return investments. This giant pool of money discovered the U.S. mortgage market, which drove demand, which led to relaxed rules, which led to a boom in subprime lending. And here we are today. From the show:

Picture the whole chain. You have Clarence. He gets a mortgage from a broker. The broker sells the mortgage to a small bank. The small bank sells the mortgage to a guy like Mike at a big investment firm on Wall Street. Then Mike takes a few thousand mortgages he’s bought this way, he puts them in one big pile. Now he’s got thousands of mortgage checks coming to him every month. It’s a huge monthly stream of money, which is expected to come in for the next thirty years, the life of a mortgage. And he then sells shares of this monthly income to investors. Those shares are called mortgage-backed securities. And the $70 trillion global pool of money loved them.

Why did the crisis occur? Because all along the financial chain — from bankers to brokers to borrowers to investors — people deluded themselves. They thought they could throw out the old rules of money. They thought they could cut corners to make a quick buck. In short: they were trying to get rich quickly instead of to get rich slowly.

Though I wish this episode spent a little more time on the role of the homebuyer in the subprime mortgage crisis, overall I think it does a great job at making a complicated subject accessible. If you’re at all interested in the topic and you have an hour to kill, it’s well-worth listening to. Here’s the 30-second promo for this show:

The entire episode is available from the This American Life web site as a free downloadable mp3 podcast until Sunday, May 18th.

For more on this subject, check out:

Also, regular GRS reader The Tim has a blog devoted to the Seattle-area housing bubble.

[This American Life: The giant pool of money]