Excerpt from Term Paper:

......These two factors of a global financial system increasingly capable of being manipulated not by bankers, but by entire governments to alleviate any costly fluctuations in their currency, as China and the US both did extensively during this time, and the deflation of interest rates drove down the cost of capital to levels never seen before. As a result, with many of the worlds western nations flush with cash and interest rates at exceptionally low levels as a result, housing re-financing became the new Automated Teller Machines (ATM) for millions of homeowners globally. In addition, low interest rates made it possible for sub-prime lenders to create highly profitable business models that extended homeowners mortgages with interest rate escalations that would initially have very low interest rate-based payments a typical working class family could afford, only to settle at three or four times the original amount in the majority of cases (Gerrish, 2002). This forced nearly all of these middle class families with sub-prime mortgages to default and eventually see their homes foreclosed upon
On a more aggregate level the subprime loans were then bundled together into investment packages and re-sold, with bankers not having any visibility into the quality of

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