The rate of growth in this sector is "1. move so fast legislators can't keep up; 2. keep going until you hit a limit, then find a way to hack around that limit; 3. GOTO 2".

Banks weren't over levered back then either because all the mortgages went straight into CDOs held by other people/institutions.

The problem was that nobody trusted each other because Lehman could just fail. So they stopped lending to each other (like the daily loans they give each other). Trust evaporated and the whole system stopped dead in its tracks.

Leverage is not the only thing that matters...