Improper pricing of risk led to suboptimal allocation of capital and inadequate preparation for the tail events eventually leading to the precipitation of the crisis. c.  Weaknesses in the Senior Management: Senior management failed to adopt and integrate necessary systems to identify, manage and report risk.
The misalignment of incentives also resulted in the management pursuing objectives which, at times, were at cross purposes to those of the firm. d.  Proliferation of complex products: There was a significant spurt in the complexity of financial products in the run-up to the crisis. Abundance of cheap liquidity prodded the participants to innovate ways to deploy the funds and earn a return.