The Wall Street Journal Opinion page is always a trove of nonsense and Jeremy J. Siegal lives up to standards in his piece there today.

First a little background. For most of the past decades most of us understood the Efficient Markets Hypothesis to mean that, on average, market prices reflect the real value of assets, the best estimate of the probability of an event and so on. If the prices of mortgage backed securities rose that must mean that mortgages were becoming more secure and more valuable and so on.

But this is not the case:

But is the Efficient Market Hypothesis (EMH) really responsible for the current crisis? The answer is no. The EMH, originally put forth by Eugene Fama of the University of Chicago in the 1960s, states that the prices of securities reflect all known information that impacts their value. The hypothesis does not claim that the market price is always right. On the contrary, it implies that the prices in the market are mostly wrong, but at any given moment it is not at all easy to say whether they are too high or too low. The fact that the best and brightest on Wall Street made so many mistakes shows how hard it is to beat the market.

Except that the real idea behind the hypothesis is that there should be some contrarian, someone who goes against the instinct of the herd and sees that there is a profit to be made by contradicting the conventional wisdom. The idea is that the errors of the so called smart people are not correlated with each other.

Here we are told that a market, which happened to be populated by the best and the brightest of Wall Street, got it wrong. But that is OK because it was virtually impossible to get it right,

And how do we know that it was virtually impossible to get it right? It was impossible because the best and brightest of Wall Street, including Mr Greenspan, got it wrong.

Tautology anyone?