Information technology also appeared to be making intermediation more efficient by reducing the cost and uncertainty of processing information that helps financial intermediaries make superior investment choices with better risk and return characteristics. Information technology also made possible the creation, valuation, and exchange of complex financial instruments on a global basis. Financial transactions were occurring faster and were less expensive to initiate and complete.
The assumption was that markets were becoming deeper and more liquid. These innovations did produce lasting gains, but these gains were clearly accompanied by increasing vulnerabilities. In the United States, financial innovation, especially in the origination and distribution of subprime mortgages, ended up contributing to an excess supply of houses at prices well above long-term sustainable levels.