“We identify the following three primary sources that sustained the bubble:

1. The continued large inflow of foreign capital.
2. The unprecedented (for fifty-two years up to that time) ease in monetary policy, 2001-2003. Chapter 5 discusses the role of monetary policy in the context of the recession of 2001. This section further examines this episode of monetary ease: Exceptionally low interest rates were associated with an increase in home purchase loans and a surge in loans to refinance existing mortgages.
3. Uncollateralized Credit Default Obligations (i.e. derivatives) widely thought of as providing “insurance” against mortgage defaults (see Chapter 7).

(Excerpt from 2014’s “Rethinking Housing Bubbles”, by Steven D. Gjerstad and Vernon L. Smith. Mr. Gjerstad is a Presidential Fellow at Chapman University and has a Ph.D. in economics from the University of Minnesota. Dr. Vernon L. Smith was awarded the Nobel Prize in Economic Sciences in 2002 for his groundbreaking work in experimental economics. Dr. Smith has joint appointments in the Argyros School of Business and Economics and the School of Law at Chapman University, and he is part of a team that created and runs the Economics Science Institute there.)

“Again, where are the evil banks and mortgage lenders who the government and mainstream press says are responsible for this crisis?”, Mike Perry, former Chairman and CEO, IndyMac Bank