A very interesting set of posts on ‘Economics of Contempt’ on financial innovation and credit rating failures.  A few key points:

Disclosure was good enough to make AIG’s exposure to Credit Default Swaps well-known.  The real problem, according to this anonymous structured finance lawyer, was that the ratings on lower-tier tranches became increasingly generous over the years.

Another series of posts (here is the last one; you can work backwards) argues that some financial innovations were indeed more helpful than harmful.  Be sure to read the comments on those, as several are quite informative.