Who's guarding the chicken-house?

From CBS Marketwatch, we have Regulators crack down on "exotic" mortgages.

Cracking down on exotic mortgages that have exploded in popularity in recent years, U.S. regulators told banks Friday that they've got to make sure that borrowers can actually pay back the full amount of the mortgage.

Let us see : the regulators are asking the banks that they should make sure that "borrowers can actually pay back" the loan? The regulators are asking the bank?

Shouldn't the bank care? (The answer is "no".)

This is like the warnings on plastic shopping bags : "Do not put over your head. May cause suffocation".

However, the truth is that the banks no longer care, and given the rules, nor should they.

Thanks to the "miracle" of securitization, the banks no longer care whether the loan will get paid back or not. They make the vigorish, and pass the loan on to a greater fool, typically a pension fund, or better yet a foreign central bank.

If the loan defaults, the bank doesn't care. The greater fools will get hurt.

In the rare case that the bank is actually holding on to the loan, the taxpayers will bail the bank out.

So what exactly are the regulators "regulating"?