Synopsis: From 2000 to 2006 the world’s monetary reserve doubled from about 36 trillion to 72 trillion. This was due to third world countries like China, India and Saudi Arabia benefiting from globalization.
The manager’s of that money always are in need of a safe investment. However, at about the same time Alan Greenspan destroyed their favorite investment, government bonds, by deciding to keep the interest rate at %1.
Eventually Wall Street stopped the gap by coming up with a new save investment based on the traditional Mortgage, arranged into pools.
With all those excess capital running around trying to find a place to grow, these mortgage backed funds became VERY popular. So much so that standards around getting a mortgage started to wane, till eventually we arrived at the No Income No Asset mortgage. The more mortgages you could sell, the more money Wall Street was making.
That’s where all the bad loans come from. As loans became cheap, more housing was being bought. As the demand for housing went up, so did prices. Thus the housing bubble.
As people eventually began to default, houses came back on the market, prices went back down, the Mortgage Funds started to lose money and the World Hit a recession.
In the end, it was the greedy mortgage brokers willing to give out an mortgage, because it was about quantity, not quality.
Tags: mortgage crisis, npr, tal, this american life
