This lesson relates to the importance of disclosure and transparency. Good disclosures ensure that risks can be clearly identified and that market counterparties are able to form a considered view of the value of financial instruments and investments. The financial crisis involved multiple failures of disclosure and transparency.
For example, conventional banks moved assets to Structured Investment Vehicles (SIVs) or “conduits” which did not form part of their normal financial reporting or disclosures. Because these entities were regarded as off-balance sheet they were opaque both to regulators and to the counterparties of the banks that sponsored them.