Funny that only three years later, the global financial system seems once again to be teetering on the brink, a prelude no doubt to another round of emergency demands for a massive taxpayer-funded rescue of European banks, and soon others as well. As we all know, contagion spreads quickly these days in the world’s banking circles.

The only thing that seems to have changed since the last recession is a defaulting Greek government has replaced defaulting U.S. subprime mortgage holders as the trigger for the next global collapse.

As a taxpayer who is once again going to be asked to foot this bill soon, you might be wondering how did Greece ever get that big to cause so much damage to the global economy? The answer is it is the same way depressed property markets in U.S. got big enough to do the same kind of damage to the global economy several years ago

Our highly interconnected, hugely leveraged, and largely deregulated global financial system delivered a piece of the collapsing U.S. subprime mortgage market to virtually every bank in the world, just like it is about to do with a Greek default.

Whether it was from counter party risk to another bank or discovering that those AAA-rated CDOs (Collateralized Debt Obligations) were chock full of dreck, financial institutions around the world took it on the chin or, more precisely on their balance sheets.

And it is happening all over again. Didn’t UBS just write down $2.3 billion of losses from its trading desk last month?

This leaves investors with very few places to hide.

Stock markets have already fallen into bear territory, and they are likely to see nothing from the global economy over the next year to halt a further slide.

Bonds yields are already ridiculously low, relative to both inflation and the fiscal risk that huge, and soon even larger, deficits bring with them.

And the U.S. dollar, the haven everyone seems running to these days, are rolling off the U.S. Federal Reserve’s printing presses like there is no tomorrow.

If it sounds like we have been here before, it is only because we have. This time, however, there is a whole lot less in taxpayers’ wallets to bail the banks out again.

Maybe it is time to try something else- like actually changing the ways banks do business in the future.

There is no shortage of people to blame for the subprime mortgage fiasco: wayward rating agencies that ranked the risk of mortgage default as comparable to the risk of a US Treasury default; unscrupulous lenders who eagerly approved mortgages and then quickly resold them to financial institutions; over-leveraged banks that used depositors’ money to play Russian roulette in the financial derivatives market; and asleep-at-the-wheel regulators (like the Securities Exchange Commission), who were either blind or indifferent to Wall Street’s systemic risk to the subprime mortgage market. However, the real culprits behind the subprime mortgage crisis were the incredibly low interest rates that sustained the bubble. All the greed in the world could not have done what the Fed’s easy-money policy made so simple.

Was it not the desperate search for yield that threw many an otherwise cautious pension fund into the arms of seemingly safe CDOs (collateralized debt obligations)? Beneath the AAA-rated vanilla wrapping paper were pools of subprime mortgages just waiting to go bust. The measly extra basis points they offered over government-funded AAA bonds may not seem like much when Treasury yields are 5 to 6 per cent, but they meant a lot more to return-starved pension plans when government bond yields fell to near-record lows.

Similarly, was it not the ridiculously low cost of credit that allowed banks to become so leveraged—hence exposed—to the subprime mortgage market? And of course, it was the same low cost of capital that allowed interest-free mortgages (negative amortization types) to be given out to anyone who would take them in the first place.

Neither the demand for financial products like CDOs that were funded by subprime mortgages, nor the supply of subprime mortgages themselves would have been possible in a world of normal interest rates. When the federal funds rate rose to 5 per cent, an historically average setting, the subprime mortgage market collapsed, creating an insolvency crisis for financial institutions whose vaults were filled with reeking CDOs.

Of course it won’t be subprime mortgages and CDOs next time, but if the Fed keeps rates at zero for long enough, you can count on financial markets’ insatiable desire for yield to invent something just as toxic.

No one has to tell me about how severe the banking crisis was. Why the hell do you think I’m an author now? But blowing up bonuses at investment banks and blowing up the world economy are two very different notions.

Everyone will tell you that it was virtually free credit conditions that spawned the subprime mortgage phenomenon. And everyone acknowledges that it was the sharp mid-decade run-up in interest rates that burst the bubble and caused the collapse in US housing prices and in the value of those mortgage-backed securities that are still wreaking havoc on bank balance sheets all around the world.

But the question folks aren’t answering is, what forced that fatal five-fold increase in the federal funds rate in the first place?

The answer to that, my friends, doesn’t lie with foreclosed homes in Cleveland, or with over-leveraged banks in New York, but rather with something that was happening in Cushing, Oklahoma.

From January 2004 to January 2006, a doubling in the price of West Texas Intermediate (the benchmark oil price in North America, which is priced at Cushing), from $35 per barrel to $70 per barrel, drove energy inflation through the roof.

Inflation, as measured in the energy component of the US Consumer Price Index, soared from an annual rate of less than one per cent to as high as 35 per cent. That, in turn, drove the headline consumer price inflation rate from less than two per cent to almost six per cent, the highest reading since Saddam Hussein lit Kuwaiti oil fields ablaze in 1991.

The Federal Reserve Board had no choice but to follow suit. Pretty soon, not only was inflation at almost 6 per cent, but the federal funds rate was as well.

Suddenly borrowing wasn’t free any more, and then, when homeowners couldn’t make the mortgage payments on homes they couldn’t afford in the first place, the whole financial system imploded.

But if oil had stayed around $35 per barrel (incidentally what the “energy experts” were calling for at the time), energy inflation would never have spiked, and neither headline inflation nor the federal funds rate would have gotten anywhere remotely close to the levels that sparked the financial crisis.

The subprime mortgage crisis was not the cause of the recession. It was a symptom of a much bigger problem—an energy shock.

It was oil prices that brought about the last recession, and unless we make some major changes to the way we live, it’ll be oil prices that bring about the next recession as well.

Ben Bernanke doesn’t get it. Make sure you do.