The hardest thing to understand about the current, and deepening, economic crisis, is that it came about largely because some of the most experienced, well-staffed and prestigious financial institutions in the world gambled on untenable projects of unlimited expansion, without ever producing sound mathematics to back up the projections. Philosophical exuberance replaced philosophical underpinnings, and the dynamo of financial speculation greased the wheels of commerce in a way that masked underlying shortfalls.

It’s fair to say this is the hardest thing to grasp about how we got here, because it’s difficult to grasp no matter what angle you come at it from. Consumers are baffled that such expertise could not have seen what many did see, that there was not enough money behind the market valuations (in stocks, commodities and real estate) to back up the pricing and the accounting that was en vogue, for several years.

Meanwhile, the bankers themselves seem baffled, because even now, in the midst of financial and economic devastation, they still cling to the idea of an inherent validity to the claims that were so pervasive just a few years ago. Adjusting not only to the idea of sustained fallout from error and loss, but also, and perhaps more importantly, to the idea that the errors were rooted in the misapplication of market theory to financial “exotics” that were viable, but weren’t what their peddlers wanted them to be, is painful, and slow-going.

Many of the minds who more easily grasp this problem are in economics, not in finance, and the financial sector is still reeling from the news of its own mutability. Its heroes are not in fact “masters of the universe”, but individuals at play with forces far beyond their control, and which they may not sufficiently understand. And so, an overly serene approach to figuring the truth out of market dynamics could lead to missing the cues and to far more agonizing choices, in the midst of change, which markets, of course, are designed to bring.

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