Not surprisingly, investors lost confidence in the ratings; they fled the market for mortgage-backed securities and ultimately withdrew entirely from all asset-backed securities. The result was to destroy the capital of private mortgage lenders like Countrywide, Washington Mutual, and Golden West, as well as Wall Street firms such as Bear Stearns, Merrill Lynch, and Lehman Brothers, not to mention Fannie and Freddie.
Their financial assets could no longer be sold, except at seriously discounted prices. This, in turn, undermined the confidence, stability, and even the solvency of some of the world's largest financial institutions. A freeze-up followed in interbank lending as one crisis fed into another, putting many major banks under water. The global credit markets ground to a halt. Interest rates soared and loan availability plummeted, resulting in the implosion of the world's asset markets, including global equity markets. The end result was the Great Recession, which plagues us to this day.
There is, in short, plenty of blame to go around, and it's important to understand the origins of the crisis to judge the fairness and efficacy of the restrictions and taxes that the Obama administration now proposes for the banks.