Forty years ago, Dr Lawrence Peter enunciated what he immodestly called the Peter Principle. Individuals would find their level of incompetence. If you were good at doing a job, you would be promoted until you were appointed to a job you weren't good at.
The recent failures of financial institutions suggests an organisational analogue. Financial institutions diversify into their level of incompetence. They extend their scope into activities they understand less until they are tripped up by one they cannot do. It was almost refreshing when the Chelsea Building Society announced large losses because it had been a victim of mortgage fraud. The bank's problems related to its core business. Most financial institutions that have come close to failure have done so as a result of losses in essentially peripheral activities.
The principle of diversification into incompetence applies from the largest financial institution to the smallest. AIG was America's leading insurance company. The company did not just undertake credit insurance, but was the largest trader in the credit default swap market. That is how its financial products group, employing 120 people in London, brought about the collapse of a business that employed 120,000.