In Japan in 1980's, similiar things happened. Bank gave out loan with real estates as a collateral and then the loan will be used to buy real estates. An investor can use a leverage of 10-20 on his personal capital to purchase a lot of expensive real estates. As a result, a bubble was produced.
Banks were left with a lot of bad loans. The incentives scheme is critical to lead to this phenomenon. In my class, a Japanese student mentioned that Japanese banks were not sophosicated enough at that time.
