Financial innovation saw the development of a number of complex products, from asset backed securities (ABS), to structured credit products such as collateralised debt obligations (CDOs) based on portfolios of ABS, and CDO squareds (CDOs of ABS that hold CDOs as collateral) and credit  BIS Review 14/2009  1  derivatives.
Only too late was it understood that the prices of these instruments move in a highly non linear fashion in response to falling credit quality in the tranches underlying the securities. When that began to happen, moreover, there was little or no liquidity in markets where these instruments were traded.