It’s axiomatic on Wall Street that, if you’re an investor and don’t know what you’re doing, you’ll be taken advantage of by the traders. This is especially true in the lightly policed bond market, where profit, not morality, holds sway. Within this atmosphere, subprime bonds are developed, securities doomed to fail largely because they are marketed dishonestly.

High-quality mortgage bonds have been a hit since the mid-1980s, and traders begin to sell lower-quality subprime bonds as well. The profits are so huge that the investment banks buy up as many mortgages as the home-loan industry can write. This, along with a government policy that encourages poorer citizens to take out second mortgages as their home values rise, gives everyone involved carte blanche to package as many such mortgages as possible. The result is a race to the bottom, to the point where people with bad credit ratings are receiving mortgages with no credit check and no down payment.

Bonds that contain these faulty mortgages are harder to sell, so Wall Street repackages the worst of them into a new type of bond that makes risky mortgages look better than they are. This is in keeping with the culture of deceit surrounding the bond business.