A short story ...

At the end of 2007 beginning of 2008, $1.9 trillion was wiped off the value of securitized MBS and ABS products as credit rating agencies started to downgrade many thousands of trenches. S&P for example downgraded 16,381 trenches by July 2008 which they had originally given a AAA rating. At least that is my understanding. If I am in error, perhaps you can tell me where for there is nothing in your short response to indicate a lack of understanding on my part. Unfortunately, there is nothing in your response to demonstrate a more thorough understanding on your part either which is a very good example of what Bally was talking about. But it may be that you are not referring to the process but to the detail of how each tranche was given a rating, ie. the mathematics behind each securitized product. Is this what you hoped to challenge? How that works? If you don't know but wish to know, see this paper for a good overview:
Credit Securitization and Credit Derivatives: Financial Instruments and the Credit Risk Management of Middle Market Commercial Loan Portfolios
It specifically addresses the sub portfolio middle market and notes; "In recent years, the development of markets for credit securitization and credit derivatives has provided new credit risk management tools. However, in the addressed market segment adverse selection and moral hazard problems are quite severe." The important thing is the date, 1998. The risks are flagged ten years before the crash. They were known about before the crash as Belinda Ghetti's email to Nicole Billick (internal S&P) demonstrates: "Let's hope we are all wealthy and retired by the time this house of cards falters." If you have some additional knowledge of interest, please share it with us.