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Originally Posted by audreyh1
It seems to me that it was really the excessive leverage that made all of this so risky. Yes, the other stuff was a mess too. But if there hadn't been such extreme leverage, perhaps the rest of the mess would have been survivable without causing a collapse of the financial system?
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I'll agree with this. Yes, people who bought houses with 0% down had "too much leverage". They lost and their lenders lost. But that wouldn't have threatened the "collapse of the financial system" if financial institutions had carried enough capital to weather the storm.
Of course the problem is in defining "enough". I think that our normal practice of regulating commercial banks and insurance companies errs on the safe side. That seems reasonable, given the magnitude of the disaster that we're told can occur if we err on the other side.
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