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What specific crime do you believe they committed, and why?

Fraud: every liar's loan which was sold on in a mortgage-backed security was a fraud. Arguably, any liar's loan, where the lending officer knew that it was a liar's loan, was a fraud.

See Bernanke's take: http://www.usatoday.com/story/news/politics/2015/10/04/ben-b....

Yes, liar's loans enabled a lot of fraud to be perpetrated against the banks. Apparently you believe we should jail bankers because the banks were the victims of fraud?

It seems like the right person to jail in this case is the person who lied to the bank.

You are absolutely right, and they should have been punished.

But those loans also shouldn't have been granted, which was the bank's responsibility. Most of them should have been caught during underwriting and verification. What, exactly, were they doing?

This is a deception or failure on both parts.

Did the banks know that these loans were fraudulent? Yes. Did they sell them on anyway? Yes. Did their executives encourage these fraudulent loans? Yes.

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