Business runs on risk management - the greater the risk, the greater the profits, but greater is the potential for disaster (but, it will NEVER happen to my industry!).

In the case of the mortgage companies, they took larger risks on the concept that the bubble would grow and not burst on them. The same thing (different financial industry, but same principle) happened in 1929 - just bigger!

Investors want greater returns on their investments, and that will only happen when greater risk occurs. As companies compete for investment funds, the profit prospectus is critical in attracting the investment money. In other words, it's a vicious cycle that only culls itself after people get burned.

The Enrons and mortgage company situations demonstrate this perfectly, and it is mortant to consider that none of them would have happened had not investors (large and small) been so eager to get that extra percentage of profit. The same with those who took sweetheat mortgage deals of greater size than was prudent - all because they wanted a little biggerhouse than they could actually afford, and bet that salaries, taxes, expenses etc (especially in situations where the mortgage was based on a dual-income, and that second income disappeared) would always favor their decision.

"When it is too good to be true, it usually is..."