The decoupling of financial positions from the underlying flows of goods and services gradually created the conditions for a credit boom. The credit boom was reinforced by an asset price boom, which credit itself was partly sustaining. Both the credit and the asset price expansion found formidable amplifiers in the microeconomics of the financial markets and in global imbalances.
In the financial market, compensation schemes for bank loan managers weakened their incentive to conduct a prudent screening of loans. Executive pay was a function of overall volumes, which encouraged turn-over and the origination of loans. At the same time, risks could be shed – or so it seemed – by selling off the loan to other investors in the secondary market.