Posted on: July 8, 2009 at 6:04 am

Most people wonder how the financial crisis will end. For some, the story of how it began is just as important.

Control of that tale will help determine how we respond to the past two years of market mayhem. At stake is the financial industry’s business model and billions of dollars in annual profits.

No wonder Wall Street executives are spinning the causes of the crisis, downplaying their roles in inflating the housing and credit bubbles while presenting themselves as integral to any solution.

This is part of an industry wide effort to return to some semblance of the pre-crisis status quo. The strategy will be tested this month when Congress holds hearings on aspects of Barack Obama’s proposed overhaul of the financial regulatory system.

Another tactic is to pin blame on short sellers who try to profit from falling stock prices.

Taken together, the message is clear: the credit crunch didn’t occur because the financial system was rotten. No, instead it was swamped by an epic storm worsened by investors looking to profit from misery. And if Wall Street says it’s not to blame, can anyone argue with that?

Yes. That scenario flies in the face of what really happened: banks intentionally used too much borrowed money to make bad loans and investments in inflated assets while regulators turned a blind eye to runaway financial engineering and investors took it on trust that everything would be fine. Decay had indeed set in.

‘It Wasn’t Us’

Acknowledging this would cause a lot of pain on Wall Street. “There is an enormous incentive for all the people who have responsibility for what happened to turn around and say, ‘Oh, no, it wasn’t us,’” says Barry Ritholtz, chief executive of research firm FusionIQ and author of “Bailout Nation.”

To sell its story line, the financial industry has been lobbying policy makers while trying to beat back anti-Wall Street sentiment.

The Street’s largest trade group has started a campaign to convince the public that the securities industry is “part of the solution,” according to a confidential Securities Industry and Financial Markets Association memo described in a recent article by Bloomberg News reporter Robert Schmidt. SIFMA is paying $85,000 a month for polling, lobbying and public relations to counter the lynch mob, according to the memo.

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Source:
Wall Street’s Newest Product Is Tale of Denial
David Reilly
Bloomberg, July 8, 2009

http://www.bloomberg.com/apps/news?pid=20601039&sid=aBarTDxTnxQQ