Had shareholders been not so greedy, banks would not need to get into so risky deals and would be able to satisfy shareholders with some decent return.
This is the model that was in place for some time, and everything was working fine. Shareholders were happy, bank management was happy too, and treasury and other departments looked like geniuses. And investors? They were looking at accelerating returns in the PAST and requested at least the same return down the road. That is where the problem started.
Accelerating growth in return is not possible with constant riskiness of investments, so
banks had to undergo more risk. Is it possible for banks to have return 10-20% when the economy grows at only 3-4%? In the long term
NO. Increased risk was the price for the return acceleration.
Did the investors know about this? The small guys like average Joe probably did not realize this. Everything looked so nice at the first sight. And the big guys - they were hoping that the allmighty FED will take over the risks. And, unfortunately it looks like FED did not have all the risks under control.
Here is a good book on this:
http://www.amazon.com/Black-Swan-Impact-Highly-Improbable/dp/1400063515/ref=pd_bbs_sr_1
