The debt markets surged not only in scale but complexity. Since 2000, for example, the amount of US bond market debt has nearly doubled in size, according to the Securities Industry and Financial Markets Association. That boom can partly be attributed to ultra-low US interest rates in the first half of the decade, coupled with an Asian savings glut, which flooded the financial system with liquidity.
In many ways this is the heart of the financial crisis. Huge international imbalances generate huge international capital flows. These capital flows, in most cases, run form central banks or other official monetary authorities through to liquid capital markets in US dollars. How could the financial sector not increase in size?