An unwritten portion of this story needs to be considered, though. The appetite for these securities was created by Congress, who mandated that banks make loans that they ordinarily would not have based on credit scores and other criteria.
Part of my business over the past dozen years, especially in the late 90's, was helping banks with major compliance projects. I remember very well the anxiety of bank officers who were about to have their CRA (Community Reinvestment Act) compliance reviewed by government regulators during that time. The regulators made it very clear that if a bank's CRA house wasn't in order they wouldn't be allowed to acquire any other financial institutions - in effect a death sentence during that period of time when banks were gobbling each other up. So this isn't entirely a story about Wall Street...but it's great reading anyhow.
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