> The fundamental problem here is systematic risk, a bank should be able to fail without bring down other banks, unfortunately the system wasn't able to cope wi

> The fundamental problem here is systematic risk, a bank should be able to fail without bring down other banks, unfortunately the system wasn't able to cope with the failure of a large number of banks who were all exposed to the same risk. Note that some of the systemic risk was caused by regulation. The US govt gave fannie and freddie stock special treatment when held by banks as part of their assets. As a result, banks overloaded on Fannie and Freddie. When Fannie and Freddie went down, that took a lot of banks into technical insolvency. (It didn't help that Fannie and Freddie lied about the loans in their portfolios, which threw off everyone's risk analysis of the market as a whole.) Bond insurance was encouraged by regulators because it let banks and pension funds hold bonds as "safe" assets. (When you're pushing mortgages, you need to make them appear safe so more folks will buy them.) The SEC gave a ratings monopoly to three ratings institutions. When they got it wrong.... Regulation is systemic risk.