The models used by the rating agencies were open and available to investors. The number of low doc/no doc loans as well as no appraisal loans were tracked and s

The models used by the rating agencies were open and available to investors. The number of low doc/no doc loans as well as no appraisal loans were tracked and specified. Given the number of loans in a particular category, the rating agencies required certain levels of protection via credit tranching, over collateralization and insurance. These models proved to be poor. But no one was hoodwinked. Now you may argue that banks accepted fraudulent applications that a prudent man would not have and then sold securities based on those, and all the big banks paid out multibillion dollar settlements over that. Why no criminal prosecution? Two reasons. IANAL, but I believe the standard for criminal fraud is higher than imprudent decisions. Second, and more importantly if you start charging bank employees criminally, you really need to start charging the fraudulent borrowers who by many accounts number in tens of thousands. No one made them commit fraud. They were not victims of fraud, they were literally beneficiaries, though ultimately foolish as well.