Financial Experts - Question on how investment banks become insolvent

[jkjsooner]

So we have a lot of investment houses that have become basically insolvent. To some extent I don't understand how this happens or at least I don't understand how it could happen to all of them.

Let's say I own an investment company. I take money from investors and, for a fee, put that money into various other investments - stocks, bonds, mortgages, whatever.

My investors are the only ones who have a skin in the game. If the investments gain then they get the gains (minus my fees). If the investments lose then they take the loss (plus my fees).

Were there not large investment houses who didn't borrow money to leverage up their bets and didn't put their own money in their investments?

[Ike]

Were there not large investment houses who didn't borrow money to leverage up their bets and didn't put their own money in their investments?

I don't think they would be large investment banks if they didn't do this...

[mdklatt]

My investors are the only ones who have a skin in the game. If the investments gain then they get the gains (minus my fees). If the investments lose then they take the loss (plus my fees).


You're describing a bookmaking operation. Investment houses invest money along with their clients--would you trust a broker who wasn't willing to put his money where he was telling you to put yours?