Another factor in that case was that the government regulated, in some cases, the ratings of bonds that entities were allowed to buy (they couldn't be as highly levered with lower rated bonds) and so there was an incentive for bond ratings to be falsely inflated, happily carried out by the rating agencies. Of course collateralized junk is still junk, and many people at the time knew that, but there was money to be made in looking the other way.