... the report focuses on an array of institutions with central roles in the mortgage crisis: Washington Mutual, an aggressive mortgage lender that collapsed in 2008; the Office of Thrift Supervision, its regulator; the credit ratings agencies Standard & Poor’s and Moody’s Investors Service; and the investment banks Goldman Sachs and Deutsche Bank.
"The report pulls back the curtain on shoddy, risky deceptive practices on the part of a lot of major financial institutions,” Mr. Levin said in an interview. “The overwhelming evidence is that those institutions deceived their clients and deceived the public, and they were aided and abetted by deferential regulators and credit ratings agencies who had conflicts of interest.”Actually, the overwhelming evidence is how much of this behavior would have been prevented if the FDR Framework had been enforced.
Enforcement would have greatly restricted the ability of Washington Mutual to underwrite risky loans. If investors had been able to do their homework on the loans and properly price the risk, they would have purchased far fewer loans at a much lower price.
Enforcement would have mitigated the impact of the deferential regulator. To the extent that Washington Mutual was taking more on-balance sheet risk by holding dodgy loans, its cost of funds would have increased and its stock price decreased to reflect this risk.
Enforcement would have eliminated the problem of conflicted rating agencies. Investors could have either analyzed the data themselves or they could have used independent third parties with no conflict of interest to analyze the data and properly price the risk.
Enforcement would have ended the gamesmanship by the investment banks. Investors would have a) seen that the investment banks were reducing their net exposure to sub-prime mortgage backed securities and b) been able to do their homework so as to properly price the securities given the risk in the underlying collateral.