Bankers have a higher level of information, and also a higher fiduciary duty to stockholders & the end purchasers of the financial products they create.
An enhanced duty -- approaching the level of fiduciary -- applies when the banks are acting as brokers for their clients. When they are acting as dealers, however, the counter-parties know that the banks were acting on their behalf and for bank's own benefit. Moreover, broker-dealers are required by SEC regs to disclose this fact -- that they are acting as a dealer in pursuit of their own interest -- in the event the counter-party was somehow unaware of this fact.
Moreover, the purchasers of various securitized products were not financially unsophisticated investors. Indeed, the vast majority of the purchasers were sophisticated market participants ranging from mutual funds, pension funds and some hedge funds. These investors were given documentation of the loans and mortgages that comprised the asset 'pool' and they chose to invest in the particular product. They either didn't understand what the nature of their investment -- in which case they should have avoided investing in such products -- or they thought they were good investments. Indeed, the were so popular amongst large sophisticated investors because the 'greed' of these investors tempted them with fat yields.
[edit]: Additionally, the systemic risk created by the banks did not relate to selling the securitized products to the various purchasers of such products. Rather, the true source of the risk was that banks were holding certain tranches of those products on their own balance sheets or on off-balance sheet vehicles (such as SPVs or SIVs) that spring-loaded them back to the banks in the event of a downturn. As such, even if you want to argue the selling banks engaged in some sort of fraudulent activities, these fraudulent activities did not pose any risk to the banks (indeed, only the investors would have suffered losses). The banks' decision to hold onto some of the very securities they were selling brought down Bear and Lehman and threatened the stability of the other large Wall Street banks.[edit]
I wrote this earlier in the thread and I'll just do a c&p:
At bottom, the crisis was produced by a housing bubble. The housing bubble was caused by a confluence of factors ranging from the imprudence of Wall St. to governmental policy to monetary policy to personal avarice on the part of individuals.
To be sure, the bubble probably would not have been as large as it was absent the financial innovations used by Wall St. banks. Like all bubbles, however, the housing bubble would have eventually would have burst irrespective of any participation by Wall Street.
I would also suggest that the seize-up in markets and the true 'panic' period of Fall '08 to Winter '09 was also partially the fault of government taking a too interventionist role in the financial markets. Specifically, the government's inconsistency in handling the Bear and Lehman situations spooked the market (the government rescue of Bear also created expectations -- both within financial markets and the remaining banks themselves -- that were frustrated when the government refused to support Lehman). Lehman could have been wound-up like any business but the inconsistent policy of the government induced an irrational response by many market participants which created the run or panic that caused such harm. This is not to suggest that Dick Fuld was a good manager or that Lehman was well-run -- they were most certainly not. I think, however, you are not properly appreciating the effect of government policy and action can have on financial markets, transforming a blip into a serious problem.
It wasn't that people asking for home loans were any more or less qualified than they ever were, in aggregate, but rather that a lot more loans were extended to people having dubious means to meet the obligations.
In the first instance, I would contend that governmental policy helped to influence the extension of credit to lower-quality credit risks. To be sure, demand simulated by financial innovation and pursuit of profit contributed to this extension as well. The one point I would make, however, is that the two banks that collapsed -- Bear and Lehman -- were not actually responsible for issuing mortgages to consumers as they were true investment banks. Although they might have been secondary-purchasers of the mortgages -- as they used them as the 'ingredients' for securtized products -- they were not the original issuers. Moreover, even some of the larger banks that had joint consumer and investment banking and needed federal assistance to avert their individual liquidity problems -- such as BofA or Citi -- were not responsible for all the activity in the mortgage market.
This is not to say that the Wall Street banks were free of blame. I think it unfair, and a distortion of the facts, to lay all the blame for the extension of shoddy mortgages at their feet.
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