Goldman Sachs and Rational Irrationality

Writing a Comment for this week's magazine about the S.E.C.'s lawsuit against Goldman Sachs got me thinking again about the underlying reasons for the subprime crisis. Was it primarily driven by Wall Street greed? Stupidity? Mendacity? Overoptimism? All of these things?

As I explained in my book "How Markets Fail: The Logic of Economic Calamities," my quick answer is none of the above. Of course, these things were all present during the housing boom, but, to some extent, they are always...