> The rating agencies could have been defrauded and if people sold those while not really believing they were of the rated quality IMO it's still fraud.

Legally that's a harder question than you might imagine. However...

...there's absolutely zero evidence of this on a systemic basis. Banks overwhelmingly made it clear that they believed the assets were good. The bailouts went primarily to institutions that had originated utter crap and then held on to it because they thought it was a great investment. Studies have been done to look at the personal investments of bank executives; it turns out they were closely correlated with their job; the more you knew about CDOs and MBSs, and the more closely linked to the system you were, the more you thought CDOs were safe as houses, and the more willing you were to have your retirement invested in it.

Conversely, the small handful of Cassandras were utterly ignored by the world in large part because they were complete outsiders who had no inside knowledge. The arguments boiled down to: "What do they know? The people who know the most about CDOs are all in; these people must just not understand the models."

(There are exceptions in specific cases. One that springs to mind is Fabrice Tourre[1]. But he was very much the exception to the rule, and it's probably not a coincidence he worked at Goldman...)

> It could have all been innocent but it certainly smells and warrants investigating.

And it was. Unfortunately (or fortunately, depending on your view) no smoking guns emerged.

[1]: http://www.reuters.com/article/us-goldmansachs-sec-tourre-id...

What I'm saying it that I don't think that claims that bankers, who are sophisticated players and experts in their field, didn't know what they were selling. They should have known those instruments were not of the quality they represented them to their customers. I don't think shifting the blame to the rating agency holds water. At the same time they were giving mortgages to people who wouldn't "normally" qualify and where the risk was obviously very high they were selling pieces of those mortgages as AAA rated securities. Doesn't pass the red face test in my books.

You're not wrong! And yet it seems very clear they did not know this. Which is pretty stupid, really...but being stupid isn't a crime.

(Plus...I mean, you were alive back then right? Did you make a ton of money betting against the housing market? If not, why not? Or if you were too young/poor, then do you know anyone who did?)

And therein rests your case. But you appear to be simply taking them at their word on this, to me. Unsophisticated observers will say, "Why would they do something so colossally stupid that it'd bankrupt their firm". But the person is not the firm. The person quite often can permanently enrich himself on the path to firm-wide dissolution.

Considering there was no product to bet against the housing market, your options are:

(1) Be a hedge fund manager of a large enough hedge fund to enter a custom derivative contract with a bank, to create the product (which is what those funds that made a ton of money betting against the housing market did)

(2) Have a few million for the minimum to investment in one the said hedge funds

So I'd say the answer for most people is "were too poor".

Doing stupid things is often a crime. It may not be in this particular case, but it's not true that lack of criminal intent is always exculpatory.

Didnt Warren Buffett say in 2002 that derivatives were weapons of mass destruction.

That doesn't make them illegal. The morality of them is more to do with selling them to people who don't understand what they are buying.

Like guns, or even some drugs.

"That doesn't make them illegal."

But it should make them heavily regulated and scrutinized, which they aren't, and won't be unless for some serious civic activism.