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Financial crisis of 2007–2008

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Financial innovation and complexity: fix
This boom in innovative financial products went hand in hand with more complexity. It multiplied the number of actors connected to a single mortgage (including mortgage brokers, specialized originators, the securitizers and their due diligence firms, managing agents and trading desks, and finally investors, insurances and providers of repo funding). With increasing distance from the underlying asset these actors relied more and more on indirect information (including FICO scores on creditworthiness, appraisals and due diligence checks by third party organizations, and most importantly the computer models of rating agencies and risk management desks). Instead of spreading risk this provided the ground for fraudulent acts, misjudgments and finally market collapse.<ref>{{cite web|url=|title=Financial Crisis Inquiry Commission – story of a security|accessdate=June 6, 2011}}</ref>
[[Martin Wolf]] further wrote in June 2009 that certain financial innovations enabled firms to circumvent regulations, such as off-balance sheet financing that affects the leverage or capital cushion reported by major banks, stating: "... an enormous part of what banks did in the early part of this decade—the off-balance-sheet vehicles, the derivatives and the 'shadow banking system' itself—was to find a way round regulation."<ref>{{cite web|url=|title=FT Martin Wolf – Reform of Regulation and Incentives|work=Financial Times|date=June 23, 2009|accessdate=May 1, 2010}}</ref>
===Incorrect pricing of risk===