What caused the financial crisis?

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http://www.washingtonpost.com/business/what-caused-the-financial-crisis-the-big-lie-goes-viral/2011/10/31/gIQAXlSOqM_story.html?sub=AR

Barry Ritholtz
Columnist

What caused the financial crisis? The Big Lie goes viral.

I have a fairly simple approach to investing: Start with data and objective
evidence to determine the dominant elements driving the market action right
now. Figure out what objective reality is beneath all of the noise. Use that
information to try to make intelligent investing decisions.

But then, I'm an investor focused on preserving capital and managing risk. I'm
not out to win the next election or drive the debate. For those who are,
facts and data matter much less than a narrative that supports their
interests.

One group has been especially vocal about shaping a new narrative of the
credit crisis and economic collapse: those whose bad judgment and failed
philosophy helped cause the crisis.

Rather than admit the error of their ways - Repent! - these people are
engaged in an active campaign to rewrite history. They are not, of course,
exonerated in doing so. And beyond that, they damage the process of
repairing what was broken. They muddy the waters when it comes to holding
guilty parties responsible. They prevent measures from being put into place
to prevent another crisis.

Here is the surprising takeaway: They are winning. Thanks to the endless
repetition of the Big Lie.

A Big Lie is so colossal that no one would believe that someone could have
the impudence to distort the truth so infamously. There are many examples:
Claims that Earth is not warming, or that evolution is not the best thesis
we have for how humans developed. Those opposed to stimulus spending have
gone so far as to claim that the infrastructure of the United States is just
fine, Grade A (not D, as the we discussed last month), and needs little
repair.

Wall Street has its own version: Its Big Lie is that banks and investment
houses are merely victims of the crash. You see, the entire boom and bust
was caused by misguided government policies. It was not irresponsible
lending or derivative or excess leverage or misguided compensation packages,
but rather long-standing housing policies that were at fault.

Indeed, the arguments these folks make fail to withstand even casual
scrutiny. But that has not stopped people who should know better from
repeating them.

The Big Lie made a surprise appearance Tuesday when New York Mayor Michael
Bloomberg, responding to a question about Occupy Wall Street, stunned
observers by exonerating Wall Street: "It was not the banks that created the
mortgage crisis. It was, plain and simple, Congress who forced everybody to
go and give mortgages to people who were on the cusp."

What made his comments so stunning is that he built Bloomberg Data Services
on the notion that data are what matter most to investors. The terminals are
found on nearly 400,000 trading desks around the world, at a cost of $1,500
a month. (Do the math - that's over half a billion dollars a month.) Perhaps
the fact that Wall Street was the source of his vast wealth biased him. But
the key principle of the business that made the mayor a billionaire is that
fund managers, economists, researchers and traders should ignore the squishy
narrative and, instead, focus on facts. Yet he ignored his own principles to
repeat statements he should have known were false.