(1) The sub-prime mortgage crisis was created by greed, ignorance of risk, lack of due diligence, a dash of stupidity and an insatiable appetite for high returns. It was NOT Fraud. No one said “invest in this fund that puts money in high yielding cash accounts”, to then go and put all the funds on a riskier asset instead. That would be Fraud. These sub-prime funds were setup by clever bankers who then sold them to less clever bankers, to capitalise on the less clever bankers greed and appetite for return. They forgot about risk. These funds, which invested in home loans given to poor people, were only ever going to go well as long as the US economy and house prices went well. Obviously when the economy turns south, the collectibility on the loans decreases and the assets are less valuable. (By the way, the same thing happens with BHP and Iron Ore prices, Woolworths and consumer spending figures, etc). A high return investment always has a high risk. Bad timing, greed, and an inappropriate consideration of risk led to this – not really Fraud.

(2) Cosy relationships in the finance industry. Yes they exist. Yes they ought to be more properly disclosed. Yes its a bit sick how high flying CEOs can ruin a company and walk away with millions in payouts. All valid points. But how exactly is this linked to the sub-prime mortgage crisis? How does putting your banker friends on company boards cause a meltdown of US housing markets? How does voting for each others pay increases cause a company of experienced investment bankers to completely disregard the risks and underlying assets behind structured finance products, and greedily put large swabs of money into investments that are so hard to understand? The cosyness of the finance industry and the meltdown in sub-prime mortgages have both occured for different reasons, neither good, but I dont agree one caused the other, as you suggest.