That’s not really what happened. It’s not that AAA rated MBS packages were secretly full of shit that should have brought down the whole rating. It was that the systemic feedback of over leverage wasn’t really taken into account.

The AAA’s wouldn’t have failed if it weren’t for the cascading effect of ARMs blowing out shit mortgages causing the financial system to get caught with its pants down.

In other words, the AAA criterion based on historical data would have been applied to the vast majority of each of the individual mortgages as well because they wouldn’t have been problematic assuming housing prices didn’t contract more than they ever had.

There’s a reason it’s called the subprime crisis.