Quote Originally Posted by Mr. Silver View Post
It is counterintuitive, but here's a simple explanation:
Doesn't a large part of this also have to do with the bond ratings? When the banks' reserves get downgraded, then they are required to re-make their reserves with higher rated securities? So not only because of profit motive, but also by law, they can invest only in the least risky investments?

Then there's the whole securitization thing, by which risky mortgages were parcelled up with stronger ones and sold to investors as a package, ultimately bringing the whole market down?