Currently, Attorneys General in New York, Ohio, and Colorado are investigating illegal appraiser activity with respect to banks and other lenders pressuring appraisers to fudge their appraisals. The Securities and Exchange Commission is currently investigating illegal activity at credit rating companies who might have been pressured into issuing artificially high credit ratings.

For the investment bankers, most of their profit is taken out of the "enhancement" value at the expense of the underlying investment that is being purchased by unsuspecting investors. In other words, the ultimate investor is getting hosed from the start but the house of cards doesn't fall until the cash flow starts to dry up -- as in, John Doe can't make his house payment and goes into default on his mortgage.

Securitizations made against the subprime lending markets were simply the weakest links in the financial chain.

Remember: Securitization also made mortgages cheaper which in term made people who could not afford a house afford it (and those people are the subprime lenders).

Also: our so called bankers (actually banks) are owned by us through our saving and pension funds.

I do agree with you that the Fed should have better regulate the mortgage banks louse lending terms and in retrospect they have probably lowered interest rates too much helping the economy overcome the tech bubble and created the housing bubble we have now.