for the Fed, the only ones who could restrain derivative lending were the banks. But Wall Street never polices itself in good times. The banks’ own balance sheets were steadily ballooning; by the late 1990s, Wall Street was leveraged 25 to 1.12 Awash with liquidity if not quite drowning in it, the banks had to find an outlet for their capital. The most tempting targets were hedge funds. “People were looking at the good side of the world,” noted Steve Freidheim, a trader and hedge fund manager at Bankers Trust. “I could borrow any amount I wanted, and the rates kept coming down. I’d get calls
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