&gt; &quot;Overall, for 2005 to 2007 vintage tranches of mortgage-backed securities originally rated triple-A, despite the mass downgrades, only [...] 4% of subprime securities had [...] losses imminent or had already been suffered by the end of 2009.&quot;<p>&gt; (Also, I think you&#x27;re missing how huge the decline in home prices was, both as cause and vector of the crisis. A vast amount of paper wealth nominally owned by the middle class vanished in a puff of smoke; most of the crisis was the result of that. But the impacts of an asset price bubble should properly be attributed to its inflation, not it&#x27;s popping.)<p>Its inflation exists because of how corroded the mortgage ratings were. <i>None</i> of them were correct except relative to each other within the mortgage bond market. You don&#x27;t rate things AAA when they are really BBB. I understand you might feel that is correct but I sure as hell do not.<p><a href="https:&#x2F;&#x2F;www.moodys.com&#x2F;sites&#x2F;products&#x2F;DefaultResearch&#x2F;2006600000426807.pdf" rel="nofollow">https:&#x2F;&#x2F;www.moodys.com&#x2F;sites&#x2F;products&#x2F;DefaultResearch&#x2F;200660...</a><p>&gt; Aaa 0.00% 0.00% 0.00% 0.00% 0.10% 0.07%<p>That is the expected cumulative default rate for a AAA corporate bond. The mean is .10% with standard deviations of .07%. So when you say &quot;4%&quot; that is absurdly high in comparison yet they were marketed and sold as if they were equivalent risks.<p><a href="https:&#x2F;&#x2F;www.imf.org&#x2F;external&#x2F;pubs&#x2F;ft&#x2F;fandd&#x2F;2008&#x2F;06&#x2F;pdf&#x2F;dodd.pdf" rel="nofollow">https:&#x2F;&#x2F;www.imf.org&#x2F;external&#x2F;pubs&#x2F;ft&#x2F;fandd&#x2F;2008&#x2F;06&#x2F;pdf&#x2F;dodd....</a><p>&gt; The extent and speed of rating downgrades of asset-backed
securities. Investors have learned to their cost that the credit
ratings of structured credit securities are more likely to suffer
rapid and severe downgrades than are corporate bonds (see
chart). Not only have downgrades occurred more frequently
to subprime securities, they have often been reduced several
notches at once because of the sensitivity of such securities’
ratings to increases in assumed credit losses. As a result,
investors’ faith in rating agency opinions has been shaken—
credit spreads on AAA-rated U.S. residential MBSs have been
priced at about the same level as BBB-rated corporate bonds
since August 2007.<p>The real value of the AAA-rated residential MBSs were the equivalent of BBB for other securities and had been for years preceding the event. The majority of the market was blinded by the assurances of the credit bureaus which were valuing BBB assets as AAA assets.<p>A credit bureau that doesn&#x27;t consistently <i>and accurately</i> estimate risk across securities is in many ways worse than useless because it gives a false sense of security where none exists.<p>Similarly, captured referees &#x2F; regulators &#x2F; credit bureaus cannot be trusted if you are not the sole organization in control.<p>However, I can see how this is likely more in the realm of opinion so I&#x27;ll just leave it here but I think the comparison to corporate bonds  is relevant.