He writes,

The reason why it was so easy to sell securities rated triple-A — like the higher tranches of the now notorious collateralized debt obligations — was not that every potential buyer was a true believer in the theory of efficient markets. It was because financial regulators insisted a triple-A rating was necessary for many of the investments made by pension and mutual funds, which the regulators would never have done had they been convinced that the market would take care of these investment decisions by itself. If the market is always right, why insist that investors choose highly rated assets? So the problem was not that market failure was thought to be impossible, but the much more sinister belief that someone else was going to take care of it when it happened.

Read the whole thing. It is an important essay, because I believe it reasonably captures the thinking at the time of the housing boom, as opposed to the perspective of 20-20 hindsight.