Nature of risks taken
It would take a very long time for anyone to catalogue the various acts of omission and commission that led to the current U. S. financial crisis. At this stage, the following failings on the part of the leading banks are well documented:
In 2007, an average securities firm was leveraged 27 to one. That means they took very large bets with very little resources of their own.
Most of them were not regulated by any prudential regulators. For many it was self-regulation, something that was obviously not practiced.
In the U.S. regulation has been highly fragmented. As many as nine different regulators oversee sections of the financial sector. AIG, the insurance giant, is supervised by the state of New York.
There has been a complete lack of transparency in sharing data. Off balance sheet risks were not disclosed and in many cases the banks did not understand the risks themselves. A huge parallel financial system consisting of investment banks, mortgage banks and other specialised entities exist side by side with the mainline financial system.
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