At the beginning of the 21st century, the amount of money in the entire world’s savings—including retirement funds, insurance funds, central bank savings, and other funds—went from $36 trillion to $70 trillion. That $36 trillion was the result of hundreds of years of growth, and then suddenly there was this unheard of expansion of funds, because countries like India and Saudi Arabia were making a lot more money and adding to that pool of savings. Before 2000, investors would do everything they could to protect their investments, and would put their money into safe investments such as municipal bonds. Then, when the funds nearly doubled, the investors ran out of places to invest their money, because although the money looking for investment opportunity doubled, the available good investments did not double. So when the demand for investments couldn’t be met, someone had to create a product that would provide more investment opportunities and meet that demand. What happened next was what Malcolm Gladwell calls a “tipping point,” or a sudden rise of an idea or behavior that spreads epidemically, because “ideas and products and messages and behaviors spread just like viruses do” (Gladwell 7).
The solution that the financial industry came up with was to identify a new source of consumer by making mortgage loans available to people with bad credit and low income. That way, investments could be made based on the interest that would be earned on these mortgages: roughly 5-9%, instead of the meager 1% available elsewhere. With such a huge demand, mortgage agents had to go find new people to mortgages, until finally in 2003, basically everyone who was qualified to get a mortgage already had one. Then another level of standards had to be introduced, and this involved NINA (no income no assets), stated income verified asset loans, and stated income, stated assets loans. People no longer even had to prove their income, they could simply say that ...
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