Beyond that, the fact that there were so many new, deep-pocketed buyers for these gimmicky credit swaps gave the lenders increased incentive to make MORE subprime loans than they otherwise would, because they knew they had buyers willing to take the stupid risks off their hands.
I always wondered, mostly in passing, how the new wave of wall street guys were increasingly MIT-like geeks with more of an understanding of logarithms than fundamental economic principles. Over the past 10 years, the products traded on Wall Street have become so complex that they don't resemble or represent anything tangible. When they're ultimatey unraveled, they essentially disintegrate.
I am 32 and graduated college in 98'. When I first got out of college, the wave of the moment was the day trader. You could sit at your desk and practically hit a button repeatedly and make money. After the market peaked, new securities (swaps, cdos, etc.) became all the rage and people made boat loads by trading these mostly fictitious creations. Like a ponzi scheme, it all worked fine until some external factor came into play. Now, perhaps we'll move to an era where something you purchase has to have some fundamental value behind it. Shocking.