02/10/2011 06:49 am ET Updated May 25, 2011

Ship Of Knaves

One view of executives at our largest banks in the run-up to the crisis of 2008 is that they were hapless fools. Unaware of how financial innovation had created toxic products and made the system fundamentally unstable, they blithely piled on more debt and inadvertently took on greater risks.

The alternative view is that these people were more knaves than fools. They understood to a large degree what they and their companies were doing, and they kept at it up until the last minute - and in some cases beyond - because of the incentives they might receive.

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