http://www.ritholtz.

com/blog/2011/02/truth-about-financial-crisispart-i/
After reading much of the final report identifying the causes of the Financial Crisis in
the United States, released last Thursday December 27, by the Financial Crisis
Inquiry Commission, I have one suggestion. But before I get to it, allow me to
explain.
Awe-inspiring labour and thought went into this document including interviews with
700 people, numerous hearings, millions of pages of information reviewed and
synthesized. Those who have followed the hearings or even read popular books or
other accounts of the Crisis will find little new with the framework and conclusions.
What makes the Report uniquely useful, though, is the level of detail (with nearly 100
pages in footnotes and untold amounts of exhibits and supporting materials)
organized so well in one document. Undoubtedly, this effort will provide tremendous
value for the long term.
However, an important near-term measure of success is whether the conclusions are
both credible and also can be communicated quickly and clearly to the general
public. Can the report as delivered succeed in educating millions of Americans about
the causes of the Crisis? And, will the result of such education be encouragement of
and support in 2012 for those political candidates who plan to facilitate, not impede,
the legislative and regulatory reforms necessary to hold people accountable and
avoid such a disaster in the future? Without an appreciation of the truth, the public
will be too easily swayed by the misleading refrain propagated by the US Chamber of
Commerce, that existing reform and certainly any future measures will be jobkilling regulation.
Communicating the true causes of the Financial Crisis is a tough challenge for our
times. Back in the day of the investigation led by Ferdinand Pecora into the causes of
the Great Crash, there were few other media distractions. Folks were riveted by the
hearings that spanned 1932 through 1934. Testimony of banksters, worked to show
how extravagant incentive salary arrangements had encouraged bank officers to
engaged in unsound security-selling and unsound banking practices. The populist
anger propelled a significant overall of the financial system, including passage of the
first federal laws regulating the sale of securities to the public and the creation of the
FDIC.
In our era, there is much competition for our attention. And, there are interests
skilled at directing populist anger away from those who are to blame and onto those
who are trying to hold the culprits accountable. In terms of competition for our
attention, even regarding the Financial Crisis, there have already been numerous
Congressional hearings, and investigatory bodies that delved into the same topics,
interviewed some of the same witnesses, and issued reports touching on similar
topics. Moreover, because the Commission report has appeared more than six months
after the financial reform legislation (the Dodd-Frank Wall Street Reform and
Consumer Protection Act) was signed it to law, special care should be paid to
explaining why the work is indeed still relevant. On page xv, the Commission makes
its ambition and relevance clear:
Some on Wall Street and in Washington with a stake in the status quo may be
tempted to wipe from memory the events of this crisis, or to suggest that no one
could have foreseen or prevented them. This report endeavors to expose the facts,
identify responsibility, unravel myths, and help us understand how the crisis could

have been avoided. It is an attempt to record history, not to rewrite it, nor allow it to
be rewritten.
So, back to the suggestion. In line with this agenda to unravel myths, perhaps,
after the Commission winds up operations in February, a few staffers (or mere
Commission-watchers) could create a program similar to the Discovery Channels
popular MythBusters. For those unfamiliar with MythBusters, it is an hour -long
cable television show hosted by two former Hollywood special-effects experts and
three charismatic and knowledgeable co-stars. Each episode typically includes three
separate investigations into whether certain urban myths can be substantiated. If
after testing out the myth, it proves untrue, it is busted. If it is accurate it is
categorized as fact. And, occasionally, a third category is invoked where the myth
is not refuted, but where a high level of certainty is unattainable, plausible. By way
of example, one urban myth is that drinking diet coke while consuming Mentos candy
will make ones stomach explode. This myth was busted. However the theory that
playing dead will help a person survive a shark attack was confirmed as fact. What
makes the show additionally useful is that viewers can send in urban myths they have
encountered, for testing.
So why and how to mash-up a myth-busting television format with the Commission
report? From the nonprime mortgage crisis of 2007, through the moment the credit
markets nearly froze up in September 2008 up to the present, it has been difficult to
become educated about what happened and why. Some of this relates to the
complexity of the subject for those unfamiliar with finance, accounting or regulation.
However, even beyond that, the truth is often hard to find. There is a mixture of truth
competing with mal-intentioned-lobbyist-backed misinformation. In this muddle, I
have noticed many myths worthy of examination.
Also, I suspect that many
Americans concerned about the Financial Crisis struggle not just with the truth about
the broader financial system, but the reality of their own financial problems in the
current challenging economy and therefore have a few myths of their own for testing.
What motivates our inquiry? Consider first, the extraordinary measures begun under
the Bush Administration to commit Trillions of dollars to prop up giant failing
financial firms. Add to that anger about the audacity of the chief executives of those
same failed firms doling out more than $18 billion in bonuses for 2008. Share the
pain of millions of foreclosures and double digit unemployment. Then, top that with
the lobbyists campaign to undo and undermine the regulatory implementation of even
anemic reforms enacted under Dodd-Frank. All of this is bewildering and infuriating.
Thus, the public is eager to understand why this happened. We wish to know whether
the blameworthy will be punished (or at the least have to return their ill-gotten
gains). We wonder whether those injured will be made whole. And, we fear for the
future of this nation, for the prospects of equality and democracy for our
grandchildren. Finally, we hope against hope that we have the courage to ensure that
this type of catastrophe can be prevented or mitigated.
The prospects of getting to that place of confidence depends upon important changes
to the current banking and shadow banking system. However without first clearing
away the misconceptions, busting the myths, we cannot see what has happened and
what is merely a smoke-screen.
Toward that end, parts ii and iii of this series shall present and debunk the top ten
urban myths about the crisis.