The mid-2000s were glory days for investment banks. Amid high global economic growth, their trading, advisory and underwriting revenues rose year after year. Many of the biggest institutions generated huge profits from their principal investment arms, which operated like private equity firms. Graduates from top universities flocked to Wall Street banks and their European counterparts, lured by salaries dwarfing what those in other industries could hope for.
Regulation was lax. But that, thought bankers and financial policy-makers, was for the best. The supposedly efficient markets would punish any bank that took too many risks. Moreover, the outlook for the US and other major economies was bright, which could only mean more good times ahead for investment banks.
