After touching on the earnings part in (Part 1), I will be touching on the balance sheet of banks in this article. What lead to the blowup in 2009? Banks were selling Asset-Backed Securities (ABS) pre-crisis to improve their capital ratio by the definition of Basel II. What does this mean? Banks were making risky loans to lousy credit rating borrowers and then repackaging these risky loans with good loans and selling it as a financial product. With the mixture of the good loans in it, it resulted in a above average rating on the financial product, which resulted in why it was able to be sold. Hence, the banks did this to raise additional cash and loaned it out again. This cycle kept repeating itself for the banks to increase their capital ratio to normal levels. Given how these bank’s seems to be one huge “black ......