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Around the world, banks must comply with what are known as Basel II regulations. These regulations determine how much capital a bank must maintain in reserve. The rules are based on the quality of the bank's loan book. The riskier the loans a bank owns, the more capital it must keep in reserve. Bank managers naturally seek to employ as much leverage as they can, especially when interest rates are low, to maximize profits. AIG appeared to offer banks a way to get around the Basel rules, via unregulated insurance contracts, known as credit default swaps.
Originally posted by Power_Semi
And that leads me to believe the coming economic contraction will be longer and deeper than most people understand.
Let us hope that those who perpetrated this financial legerdemain receive their just deserts.