Mortgage-backed securities weren't exactly the problem, it was merely the vehicle in which a trans-Atlantic banking regulation arbitrage trade was carried out,

Mortgage-backed securities weren't exactly the problem, it was merely the vehicle in which a trans-Atlantic banking regulation arbitrage trade was carried out, and the trade accidentally became fully self-financing. US mortgage originators and banks were allowed to take risk if they sold it off onto the capital markets, and EU banks were allowed to take risk as long as it was deemed "safe" by ratings agencies. The truly pernicious part is the self-financing spiral. Banks issued mortgages, which deposit cash in the home seller's account. Seller puts the cash into a money market fund. MMF gets short-term interest by financing AAA-rated securities. EU banks use this financing to buy senior tranches of MBSes. These MBS purchases allow banks to issue more mortgages by freeing up their capitalization. Like, zero-sum alchemy will only generate small frauds and relatively limited losses. You need large amounts of leverage and some kind of self-financing spiral to generate catastrophic de-leveraging events.