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The Greenspan-led Federal Reserve wasn't the only source of easy money powering the housing boom and inflating the bubble. A flood of capital also poured in from around the world. Global investors thought U.S. housing was a great investment. Their funds drove mortgage rates lower and empowered lenders to offer increasingly aggressive and ultimately unmanageable mortgage loans.

International investors were flush with dollars the swollen U.S. trade deficit generated. Hundreds of billions of dollars flowed overseas each year in exchange for the imported goods Americans craved. U.S. consumers had been on a buying binge, fueled by the Federal Reserve's rate cuts, the massive Bush tax cuts, and all the credit they needed. Imports, in particular, were bargains, thanks to an explosion of low-cost Chinese production and the high-flying U.S. dollar. Surging prices for oil and other commodities, driven in part by booming Chinese demand, also added to the import bill. As a result, investors in places from China and India to Russia and Brazil were collecting huge pools of dollars.

For these newly flush global money men (and women), the bonds and other credit market securities Wall Street devised seemed to be perfect investments. Global investors could match the amount of risk they were willing to take with an instrument tailored to provide it or, at least, that's what they thought. And the U.S. bond market was huge, liquid, and historically safe. Liquidity showered U.S. credit markets, pushing interest rates lower.

It didn't take long for global investors to become especially enamored of mortgage-backed bonds. Foreigners had historically been buyers of risk-free U.S. Treasuries, and the bonds government-tied institutions such as Fannie Mae and Freddie Mac issued and insured were only a small step removed. It wasn't much of a leap to invest in mortgage securities whose ties were to Wall Street instead of to the U.S. government.

A self-reinforcing cycle developed: American consumers were eager to buy and the rest of the world was happy to sell, producing the goods Americans wanted and collecting their dollars. But those dollars didn't stay overseas; they reentered the U.S. economy as investments in a broad array of financial securities none more popular than mortgage- backed bonds. As foreign investors bid up the prices of those bonds, they pushed interest rates lower, following the rule of all debt securities that price and yield move in opposite directions. The lower interest rates were passed along to mortgage borrowers, and competition among lenders led to easier lending terms as well. Cheap and easy credit spurred more home purchases and still more borrowing and spending. The cycle was complete.

The easy-money policies of most central banks also revved up the global cash engine. Most economies had struggled in the wake of 9/11 and the U.S. invasion of Afghanistan and Iraq, and their manufacturers were withering under the onslaught of Chinese competition. With inflation giving way to deflation, they had a green light to slash interest rates. The Japanese were particularly panicked after more than ten years of economic malaise; they pushed their interest rates literally to zero.

Cash was everywhere. At first, investors were skittish about the U.S. stock market after the technology-stock bust. They also had qualms about investing in emerging economies, remembering the late-1990s Asian financial crisis and Russian bond default. But these concerns quickly faded. By the mid-2000s, investors acted as if the stock, bond, and real estate markets were full of screaming buys.