Yes, bond ratings were a big cause of 2008. Adverse selection/the market for lemons was a big part of that. Suppose the bond rating agency has a set of criter

Yes, bond ratings were a big cause of 2008. Adverse selection/the market for lemons was a big part of that. Suppose the bond rating agency has a set of criteria to rate a bond AAA. You figure out how to structure your product to meet the letter of those criteria in one tranche, but the characteristics of the product's statistical distribution is very different than what the person who made the criteria was expecting. Or, you convince the bond rater into making some more statistical assumptions about the product that the product doesn't actually meet, and then you pass the AAA test with those assumptions in place. There is a blurry line between #2 and #3 which is basically just paying off the bond rater. Ultimately modern structured products creation and sales is basically just like old-school used car sales. Put sawdust in the motor, roll back the odometer, and tell the customer that it was driven by a little old lady that only took it to church and to the supermarket. Caveat emptor.