incompetence and ignorance

Michael Lewis has put good effort into helping us understand why some people were able to see our  financial disaster while most were so blind.

His point is from Tolstoy:

The most difficult subjects can be explained to the most slow-witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded that he knows already, without a shadow of a doubt, what is laid before him.

A Pack of Fools, James Kwak prefers to say, is what was going on behind the scenes on Wall Street.

Free financial markets are supposed to create efficient prices.

Every argument about the benefits of financial markets (optimal allocation of capital, liquidity, etc.) depends on this one point.

But the prices in this market were being set based on the dealers’ own interests. Think about that.