It’s fraud because ratings companies knowingly lied and misled investors.

There was also substantial, systematic mortgage fraud by lenders.

I’m sure if banks had donated and lobbied less, some would be in jail.

What specifically did the credit rating agencies lie about?

Again, what was the fraud by lenders? You seem to have to taken the view that securitization turns fraud by borrowers into fraud by lenders.

Moodys rates mortgage backed security as A when many mortgages lacked proper documentation and underwriting and were not worth the amount of the mortgage at time of issuance. [0]

They were rated as prime but were actually junk.

There was no criminal investigation because the US DoJ decided not to. Civil suits didn’t get far because it was hard to gather information without criminal jurisdiction.

Obama got almost $50M from Wall Street for his 2008 election and it paid off well for his donors. [1]

With that much fraud, there should have been more criminal convictions rather than bonuses as usual.

[0] https://en.wikipedia.org/wiki/Credit_rating_agencies_and_the... [1] https://www.opensecrets.org/industries/recips.php?ind=F&cycl...

The models used by the rating agencies were open and available to investors. The number of low doc/no doc loans as well as no appraisal loans were tracked and specified. Given the number of loans in a particular category, the rating agencies required certain levels of protection via credit tranching, over collateralization and insurance. These models proved to be poor. But no one was hoodwinked.

Now you may argue that banks accepted fraudulent applications that a prudent man would not have and then sold securities based on those, and all the big banks paid out multibillion dollar settlements over that.

Why no criminal prosecution? Two reasons. IANAL, but I believe the standard for criminal fraud is higher than imprudent decisions. Second, and more importantly if you start charging bank employees criminally, you really need to start charging the fraudulent borrowers who by many accounts number in tens of thousands. No one made them commit fraud. They were not victims of fraud, they were literally beneficiaries, though ultimately foolish as well.

In several deals mortgages were claimed to met underwriting but a substantial fraction had not. There was significant civil litigation on this matter but no prosecutions in part because showing knowledge by a particular person was hard.