The people who allegedly made those rookie mistakes made enormous amounts of money. My questions: is it a mistake if the result is making an enormous amount of money?
My view is that they weren’t making a mistake. They did precisely what the incentives told them to do–take lots of risks with borrowed money. In the worse case scenario, you’ll get fabulously rich–the execs at Lehman and Bear. In the best case scenario, you get even more money than that–the execs at Goldman and JP Morgan. So what do mistakes have to do with the crisis?
The taxpayers ended up paying the price, not the risk-takers. Our mistake was not paying attention. But we usually don’t. We don’t have time or much of an incentive.
If we give people powerful incentives to do something abusive, and then complain when they do it… who’s at fault, precisely?