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banks operate in the public trust. investments houses have no such stated obligation although they should. allowing them to be one and the same was a huge failing.
high risk lending isn't what crashed the market. that was only one teeny, tiny, part of it. what crashed the market were trash derivatives bundled up in little packages until no one knew what they were buying or betting on.
the lending practices that were problematic is that banks didn't care about risky investments. they told people to keep re-financing and suck out the equity from their homes. then promised they would re-fi when the ARM hit. however, when the ARM hit, the properties were already devalued and because there was no equity, they couldn't get a re-fi. the fault for that type of thing was the banks, the mortage brokers (who both made huge fees for every re-fi) and people borrowing on their mcmansions because they thought the bubble would never burst. i know, i closed a lot of those re-fi's for people. and each time i did it, i said to myself, i would NEVER take on that type of obligation.
and everyone else was running around with cash in their hands thinking it would never end.
You're leaving out an important piece. The fact that many of those derivatives were ultimately backed up by the Full Faith & Credit of the United States enabled their creation in the first place. This "crisis" was manufactured by socializing risk and privatizing profit. That is not a free market - it is cronyism. It needs to stop.
The financial reform bill will actually make it worse by expanding the governments ability to take over businesses and bail them out.