Risk managers were keen to use unregulated, derivative mortgage products to shift risk off their balance sheets. What is the consequence of failing to regulate investment business activities in a free-market environment?

Question

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Failing to regulate investment business activities in a free-market environment can lead to unscrupulous participants exploiting the opportunities to act in their own self-interest without regard for the consequences to others. This can result in market failures, such as the 2008 financial crisis, which had a global impact.

Risk Managers Were Keen to Use Unregulated, Derivative Mortgage Products