You are making a few assumptions that are false. My casino traded virtually everything, not specifically US RMBS, and we didn't securitise mortgages. Thanks to the fear of being left behind and the mass pimping of property on UK TV , UKRMBS aren't significantly less crappy, they just talk about non conforming loans instead of Alt-A and subprime, and BTW we didnt have ANY of that - EVERYTHING tanked - IMO the entire asset class is garbage predicated on naive assumptions of low default correlation, but that is an entirely different subject - there was a panic induced stampede for the exit. CMBS were not considered a different class, I just didnt mention then specifically - we had plenty in the book and they tanked as well - it has not just recently happened, whatever you heard elsewhere, and yes their investors can still be victims of asymetric information, or they can be muppet traders in which case the shareholders are the victim and FFS dont tell me they should know because they don't - stuff gets hidden OBS. We did package some GBP and EUR ABS/MBS into CDOs, but mostly we bought other people's crap, and as I said about using different risk factors and about the stress tests, I did warn them and I was not alone in doing so. I did not cover that desk specifically, we were too small a shop for that - I covered everything they did. As far as I am concerned I did what I could in that environment to protect the bank and I won't be handing back any 'ill gotten gains' to the al-Saud family.
The blame does not lie with a small number of traders and I didn't say it does. It wasn't a minority of banks involved in the ABS mania - it was virtually all of them - if not as originators, then as investors. Practically the entire financial industry viewed securitisation to be a risk free gold rush - after all, you could ultimately reposess the asset, right? ... if it is worth anything. It was the madness of a crowd slavering at the prospect of big personal payoffs, which blinded them to the systemic risk.
Unless you have worked in that environment where traders & their bosses fixate entirely and solely on this year's bonus I dont think you can really appreciate that the perverse incentive structure undermined the entire financial industry by encouraging short term gambling instead of well thought out investment. Nobody cared if what they bought this year and made a mint on blew up on January 1st. The core point is that the without the deregulation that allowed real banks (i.e. ones in retail and commercial deposit taking/lending) to act like the casinos, it would not have mattered one bit if it all blew up. Mine was purely a casino and the world will barely notice if it completely folds (it was recapitalised). The same cannot be said of HBOS, Citi. Deregulation is 'wot dun it'.
FYI we also traded coporate and sovereign debt (cash and CDS) including emerging markets, vanilla IR derivatives, commodities, equity and FX. Just to set the record straight.