What lies at the heart of the financial crisis

I have read a considerable amount over the past while on the genesis of the current crisis.

• Some blame CEO stock options in creating a risk-free environment to create an illusion of short-term wealth (at the expense of real long term wealth);
• Others have blamed greed in general;
• While still others have pointed to lax underwriting standards as the culprit;
• Others point to flawed business models;
• While still others identified Greenspan's cheap money as the problem;
• Others have pointed to excess leverage in the system;
• Others have pointed to the disconnect between the borrowers and ultimate holders of the debt as it was securitized.

I have no doubt that each and every one of these were factors in this crisis balloning to something that may well be out of control.

Still, almost all of them miss the basic moral property that this crisis arose from: LIES. Essentially, everyone told the same lie, a lie that can be summarized as everyone saying, "it's all good".

Enough borrowers lied to the lender about their income (often with a wink, wink, from the broker or loans officer);

Enough loan officers lied to their superiors about the borrower, knowing these undocumented incomes were bogus;

When a loan officer did express concern, enough superiors lied to them about the potential impact of passing on just one lie would have, thus encouraging further lies;

Enough bank executives, by commission or omission (remember how your parents hated lies by omission?), lied to both the rating agencies and to the sellers of the debt as it got sliced and diced six ways to Sunday assuring them it was all good.

I'm sure I've missed some of the many lies that were told in this whole sorid tale of lies, lies and more lies.

In case anyone is in doubt about the interconnected of the world today, and how one lie can hurt everyone - just look at this mess. The financial system of the entire world is at risk today, simply due to one lie - one lie too many.

What lies at the heart of the financial crisis? LIES.

JW

The Confused Capitalist