> The market panicked, and groupthink took over, causing an emotion-based drop in the value of mortgage-backed assets that was far out of proportion to the actual losses
No. What happened is that people realized that the ratings were a total fiction. That realization was applied not only to the mortgage equivalent of junk bonds but to EVERYTHING.
It took more than just home foreclosures to melt the economy.
Once people realized that the ratings agencies were a big fat fraud, trust in general was destroyed.
THIS is why we have an SEC to begin with. We have experienced much of this nonsense before and chose to make laws intended to avoid the negative consequences of financial corruption. However, people forget about the relevant history and just start to whine about how they are being impeded from making a buck today.