The Giant Pool of Money in US Credit Crisis

Orcun Kahyaoglu


The global pool of money is all the money spent in every country on Earth in a year and currently it is $70 trillion but in the year of 2000 it was $36 trillion.

Fed held the interest rate at a very low level %1 that did not attract the investors waiting to invest the giant pool of money into low risk high return investments like US Treasury bonds.

Homeowners were paying %5 to %9 to borrow money from banks at that time. But for a giant pool it is not possible to handle with people one-by-one. So a way was formed to use the pool. The mortgages were bought from a broker and sold to small banks. Then the banks sold these mortgages to Wall Street’s large investment firms. So huge amounts of mortgages were collected by these firms to be sold as mortgage-backed securities to the giant pool’s investors (The Giant Pool of Money, 2008).

The biggest problem is that they trusted credit rating agencies’ grades. The grades indicated that the mortgage-backed securities were as safe as the US government bonds. But in real they were not. The mortgages were given without checking the payment capabilities of people.

These unsafe high-risk securities called toxic waste were going to create a real trouble in following periods, which is crisis.

This Is American Life. (2008). The Giant Pool of Money. Retrieved from: http://www.thisamericanlife.org/radio-archives/episode/355/transcript