Nelson Mandela had the idea for a Truth and Reconciliation Commission in an effort to discover and reveal past wrongdoing by government and individuals during South Africa’s apartheid era in the hope of resolving conflict left over from the past. Maybe we need the same thing to understand and accept all the wrong-doings we experienced during the "financial crisis." The blame for the financial failure of the past two years falls on pretty much everyone’s shoulders. Mistakes were made by just about everyone.

John Lanchester’s book, I.O.U: Why Everyone Owes Everyone and No One Can Pay (Simon & Schuster: January 2010) accurately summarizes where the blame can be levied:

1. banks took on excessive risk: Royal Bank of Scotland’s balance sheet exceeded the U.K.’s national income; Iceland’s largest banks took on foreign debt that was 12 times the size of the economy; the SEC’s April 2004 exemption of brokerage units from taking on excessive debt resulted in companies like Bear Stearns leverage ratio (borrowings to assets) rising to 33:1;

2. "financial innovation" allowed loans to be passed on with no individual entity retaining responsibility for the underlying asset’s recovery or repayment; so-called "innovations" included credit default swaps, off-balance-sheet special investment vehicles/special purpose entities, and a complex array of derivatives. According to Prof. Henry Hu, this was a massive "debt-decoupling" where all the risk was dumped onto naive investors, while all the fees were retained by the financial entities;

3. risk assessment was based on mathematical models that were little-understood and which separated investment from true underlying asset valuations;

4. boards of directors and management had little if any comprehension of the underlying models or the risks, therefore provide little oversight or internal controls;

5. mathematical models were based on fundamental flaws of judgment and lacked essential risk-weighing information;

6. models were used to maximize short-term fee-based revenues at financial institutions;

7. business schools and other educational entities took up the glamorous business of teaching financial engineering and model-building without any consideration for the ethical consequences of the downside of their for-fee training;

8. financial institutions and pension, mutual, and private funds participated in "collective wishful thinking," marching in lemming-like lock-step; the clique of social networking favored the followers; skeptics were ignored;

9. the Federal Reserve System failed to respond to indicators that argued for increasing excessively low interest rates for a protracted period of time even in the face of the housing bubble;

10. regulators fell prey to politics: failed to provide oversight, enforcement, or mandate transparency anywhere: accountants/audtors, banks, insurance firms, pension firms, securities firms, appraisal firms, real estate mortgage, sales and brokerage firms, hedge funds; or ratings agencies;

11. credit ratings agencies failed their due diligence mandate and became the pawns of the financial investment sector;

12. economists as well as academicians became enamored of the wizardry of financial engineering and failed their charter of neutral, third party objective analysis;

13. the media propagated paradigms of efficient markets, rational expectations, and a belief in the capitalist system which suckered the investment community into making decisions that exceeded the investors’ financial literacy

14. politicians allowed financial industry lobbyists to write their legislation for them, abdicating ownership and control over the content, and abandoning the financial consumer to the jibberish of the marketplace

15. legislators, advocates, and developers pushed the GSEs (Fannie Mae and Freddie Mac) to levels of subprime lending that exceeded the capacity of the financial community to manage the underlying risk

16. predatory lending was allowed to reach epidemic levels even though a horde of regulatory entities, all responsible for oversight and control (including the FBI), collectively ignored all apparent indicators of out-and-out fraud

17. all sectors of the economy worshiped credit regardless of the capacity of individuals or institutions to manage debt effectively

18. excessive compensation was fueled by short-term, fee-based levies, while average incomes were allowed to stagnate for decades

19. housing construction (AGAIN! How many times have we allowed the construction industry to drive us into economic oblivion?) was allowed to accelerate beyond what could be considered a reasonable level of investment compared to population growth, migration, or incomes

20. the consumer became financially illiterate, not only playing in the financial marketplace beyond logical limits, but in many instances doing so fraudulently on a massive scale.

Given the pervasiveness of these incompetencies, throughout the financial marketplace, we might expect that any proposals made (whether by the financial community, legislators, the regulators, or the high and mighty men and women of the administration) might possibly attempt to link the alleged solutions to the specific problems identified.

Making that linkage a reality should be the first step in addressing some of these problems. Addressing the solutions assumes taking ownership of the problems -- it assumes a little truth before we can reconcile.