John Cassidy on Soros on our current systemic failure:
Outside the idealized world of Lucas’s theory, knowledge is imperfect, people stick to wrongheaded ideas, and there is no agreed version of how the economy works. In these circumstances, Soros rightly points out, economic expectations, even biased ones, can help to determine economic fundamentals.
As in:
Until last summer, the US economy was awash in easy credit. In one way or another, the banking system played an important part in issuing many of these loans, which is hardly surprising since that is how banks make money. Rather than criticizing his fellow investors on Wall Street, who created many of the newfangled debt instruments—such as mortgage-backed securities and collateral debt obligations—that have now imploded, Soros puts the blame on the regulators and central bankers who aided and abetted the financiers’ incendiary activities. Under the system of “self-regulation” adopted by American and European banking regulators, many big financial institutions, such as Citigroup, Barclays, and Union Bank of Switzerland, were allowed to rely on their internal risk-management systems. The only outside check on their activities came from commercial ratings agencies, such as Moody’s and Standard & Poor’s, which depended on the banks’ fees for business.
Or, simply, the referee cannot play in the game.