The End of the World is Just the Beginning: Mapping the Collapse of Globalization

by Peter Zeihan

Backed by broad-scale government, financial, and cultural forces, an entirely new sort of firm manifested. These new “mortgage origination companies” identified would-be homebuyers, provided the financing to get them into homes, and then sold the resulting mortgages on to investors. Those investors bundled the mortgages together into packages and then sliced them into pieces for circulation on bond markets. The idea was that mortgages were the safest of investments (people will do whatever they can to not lose their home and the money they’ve sunk into it). By turning mortgages into bonds (specifically “mortgage-backed securities”), more investors of more types could put more money into the market, driving financing costs down for everyone. With capital no longer being the restrictive factor it once was, credit terms gradually got easier. Long gone were the days when a would-be homebuyer would have to put half down. Half became a quarter. A quarter became a fifth. A fifth became a tenth. A tenth became a twentieth. A twentieth became nothing. Nothing became . . . 5 percent cash back. Credit checks became less strict. Eventually they disappeared altogether. Now issuing mortgages to clients they knew could not service payments on their new homes, the mortgage origination companies started selling their mortgages within days, even hours, of arranging home sales, for fear someone would discover the jig was up. The mortgage-backed securities quickly degraded from the safest of ...