When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.” So said Chuck Prince, CEO of Citigroup, in July 2007.1 He was referring to the highly leveraged lending business that helped drive his company’s profits. At the time, Citigroup was the largest financial institution in the world, and Prince’s attitude toward the risks associated with that business model was common among...

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