Question

Why did American commercial and investment banks make many more risky loans and investments in 2008...

Why did American commercial and investment banks make many more risky loans and investments in 2008 than in 1980? To what extent were policy mistakes by the government responsible for the financial meltdown?

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Answer #1

American commercial and scheduled banks made mpre risky investment due to subprime mortgages which were considered least risky and were highly rated by credit rating agencies cpupled with excessive leverage mechanisms and lack of forensic audit.

Policy mistakes by government like lack of regulatory intervention in timely manner and lack of imposing capital norms as well as credit checks and excessive lending mechanisms and reserve requirements paved way for massive failure and bankruptcy of these banks.

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