They have been retreating from unprofitably risky loans to clients, especially to small businesses.
That's because many who took out these often risky loans can't pay them back.
And suddenly, growing numbers of home buyers were taking out exotic and risky loans.
Investment banks hold many billions of dollars of debt and have lots of risky loans on their books.
That's why banks were willing to make these risky loans to subprime borrowers.
The "cooperation agreement" applied only to the firms' ratings on mortgage securities backed by subprime and other risky loans.
But in a familiar national story, mortgage lenders handed out risky loans and buyers took on more home than they could afford.
These companies were deep into subprime and other risky loans, and by the end of 2007 most of them were losing billions.
By the time of the housing collapse, there were 27 million subprime and other risky loans, half of all mortgages in the United States.
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Fast-forward about a month and Pimco announces a new fund that focuses on buying the kinds of risky loans that it was trying to get Bank of America to buyback.
Last year's subprime-fueled gridlock in the credit markets even spread to high-quality debt, however, as investors realized that the re-packaging and re-distribution of risky loans could signify a ticking time bomb in all corners of credit.
The Complaint alleged that Mozilo, Sambol, and Sieracki knew that Countrywide was writing increasingly risky loans and that defaults and delinquencies would inevitably rise among loans that Countrywide serviced or had packaged and sold as mortgage-backed securities.
But much of it was due to the irresponsibility of large financial institutions on Wall Street that gambled on risky loans and complex financial products, seeking short-term profits and big bonuses with little regard for long-term consequences.
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Figures from the bank suggested that repayments on those risky loans had been better than expected, our business editor said, which could ultimately allow the state to "pocket the handsome fee for the insurance and never pay out a penny to RBS".
It came to light the Countrywide was in serious trouble with risky unorthodox loans.
Way too many risky house loans were made under threat of sanctions.
Apparently there were other risky VIP loans that Mozilo personally approved.
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As more homeowners face foreclosure, lawmakers are looking into the practices of subprime lenders who specialize in risky home loans to people with weak credit.
That industry had boomed in recent years by using Wall Street money to make risky home loans, confident that rising home prices would paper over any problems.
In July, the collapse of California-based IndyMac, which the FDIC had to bail out because of the excessive number of risky mortgage loans it made, heightened fears that more bank failures were on the horizon.
French insurer AXA (nyse: AXA - news - people ) and German bank IKB (other-otc: IKBDF - news - people ) have both seen investment funds run into trouble over exposure to risky American loans.
Congress needs to learn more, not only about the kind of criminal activity for which Bernard Madoff is being charged, but also the legal practices -- such as risky home loans -- that created dangerous bubbles and put families at risk.
Not only did the bank make a lot of risky home loans to people who couldn't document their income and now can't pay, but Indymac also had a fairly fickle base of depositors, since it offered few branches or other services to build loyalty.
Making a series of risky housing loans, packaging them up into securities, selling those securities, cutting those securities up hundreds of ways and selling those in order to make money ultimately causes a tremendous bubble that bursts, resulting in a financial crisis that taxpayers have to then come fix.
The credit-card firm has done much to right itself since 2001, when the economic slowdown hit its sub-prime customers (ie, those considered too risky for mainstream loans) particularly hard and defaults soared.
But while Immelt has taken major steps toward shoring up the company's balance sheet, including slashing its reliance on short-term commercial paper and reducing risky real estate loans, GE is still vulnerable to rising interest rates and unwelcome scrutiny from regulators.
The current mortgage crisis was caused in part by lenders who made loans to risky borrowers who couldn't afford down payments.
Sure, leverage was a disaster at the peak of the bubble, as investors were buying overpriced housing, often with risky flexible-rate loans.
Analysts worry that some of the money going into these products has been used to make high-interest loans to risky private businesses shunned by the banks themselves, a phenomenon critics say could exaggerate loan and investment losses in China's financial system if an economic slowdown led to widespread defaults.
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