The originators of these loans had fewer incentives to carefully assess the creditworthiness of borrowers, because once the loan had been securitized and sold, the originator no longer faced the consequence if the borrower defaulted. I'll return to this point a bit later.
But for now, suffice it to say that this decline in lending standards, combined with financial engineering, was helping to spur merger and acquisition activity, including private-equity takeovers, as well as lending in markets such as the U.S. subprime mortgage market. The process of securitization is not new.