Such mistakes made by finance are explained very entertainingly in Nassim Taleb's book Black Swan. Or for free this Edge article by Taleb is very good:
http://www.edge.org/3rd_culture/taleb08/taleb08_index.html

If wealth is created through work (which most of do) and the tranfer of wealth is through gambling (Vegas style or by financier wizardry), then is the $700 billion bail-out to re-bankroll the gamblers, by making us work harder?  PS: where did the pot go in the first place?

T/R Issue Nov/Dec 2007: "The Blow-Up"

One year later: Financial Engineers: Masters of the Universe or Sorcerer's Apprentices?

This T/R article led off with:
"This summer [2007], as a meltdown in the subprime credit market spilled over into other markets, all eyes were on the mathematically trained financial engineers known as "quants." Who are these guys?"

Today, I suspect that many investors would like to know "Where are these guys, and what are they doing now to help with the financial crisis they may have unleashed - perhaps inadvertently?"

We should have known that something bad was afoot financially when the article said:
"No one quite knew why, yet, but the market's odd behavior would turn out to be closely linked to the work of the quants. In addition to creating arcane financial products, quants have been pushing the frontiers of computer-driven trading systems, and not enough of those systems were working the way they were supposed to--or, to put it more precisely, the way they were supposed to work turned out to be counterproductive in volatile times like these."

and

"Another related explanation for the August [2007] downturn was that the quants' models simply ceased to reflect reality as market conditions abruptly changed. "

UPDATED ARTICLE PLEASE
It would be beneficial for T/R to publish an updated article to the 2007 Nov/Dec "Blow Up" on quants and their methods. Some suggested focus areas:
1] How is the ongoing sub-prime loan crisis a textbook example of the laws of unintended consequences?
2] How does one account for plain old human greed and avarice even when using the most complicated math on the planet?
3] Why were worst case options [e.g., that the mortgages so neatly stacked, racked, sorted and diced into derivatives were quite rotten right from the start] not considered?
4] What are the effects on the Markets of many independent [or in some cases redundant] "black box algorithms" running concurrently?

Cheers

An open letter from America Is Our Creation! at http://AmericaIs.OurCreation.info .


To my U.S. Government representative:

Please DECLARE VICTORY with your Save America Plan for the American economy!  Please STOP the lunacy that is the proposed $700 billion Paulnankebush Bailout of Global Financial Investors and Employees!

You have a choice.

You had the foresight to insure the stability of the U.S. financial system, and to insure the safety of deposit and investment accounts in banks, savings and loans, credit unions, and brokerages up to reasonable levels by establishing the FDIC (Federal Deposit Insurance Corporation), NCUA (National Credit Union Administration), and SIPC (Securities Investor Protection Corporation).  You gave the FDIC and NCUA the power to use the full faith and credit of the U.S. Government to do this for banks, savings and loans, and credit unions.

You also have allowed the Federal Reserve to grease the wheels of the credit markets by accepting high risk debt as collateral for short term loans.

Please declare victory via your Save America Plan and focus your efforts on enabling the FDIC, NCUA, SIPC, and Federal Reserve to do what they do even better, instead of focusing your efforts on the duplicative, excessive, and THIEVING Paulnankebush (Paulson/Bernanke/Bush) Global Financial Investors and Employees Bailout.

Your Save America Plan is a much better solution than the proposed Paulnankebush Bailout of Global Financial Investors and Employees because:
* Your Save America Plan injects cash into the financial system through multiple vehicles, reestablishing the flow of credit.
* Your Save America Plan insures the market value of deposit and investment accounts up to reasonable levels.
* Your Save America Plan takes MUCH less money from American taxpayers than the thieving Paulnankebush Bailout of Global Financial Investors and Employees.
* Your Save America Plan keeps inflation manageable.  You would create runaway inflation if you support the excessive Paulnankebush Bailout of Global Financial Investors and Employees, making Americans poorer on Day 1 as the prices skyrocket for gas, food, and all goods and services that are imported, have any imported component, or use oil and gas in their creation or distribution.
* Your Save America Plan GUARANTEES repayment of deposit account insurance claims to American taxpayers whereas the thieving Paulnankebush Bailout of Global Financial Investors and Employees does not.  Financial institutions will repay FDIC/NCUA insurance claims through increased risk-based insurance premiums, whereas your support for the Paulnankebush Bailout of Global Financial Investors and Employees would be a gamble on a new U.S. government agency buying low and selling high.  If (more likely when) when you lose that gamble, you will force the American taxpayers to foot the cost of the Paulnankebush Bailout of Global Financial Investors and Employees forever.
* Your Save America Plan moves deposit and investment accounts to financial institutions whose management teams are so STRONG that they didn't cause themselves to fail by taking too much risk.  We desperately need these kinds of better managed next-generation financial companies in the American economy.  If you support the Paulnankebush Bailout of Global Financial Investors and Employees, you will leave deposit and investment accounts in financial institutions whose management teams are so WEAK that they caused themselves to fail by taking too much risk.
* Your Save America Plan prices and disposes of the toxic wastes that are the bad loans/debt and their derivatives.  The FDIC/NCUA/SIPC have been successfully selling bad loans/debt and their derivatives for years, whereas you would entrust a new and inexperienced (at least in working together) team to do this with the Paulnankebush Bailout of Global Financial Investors and Employees.
* Your Save America Plan enables housing prices to fall to sustainable levels.  Homeowners in trouble can sign their house over to the mortgage holder, rent for a while, and then buy a new home when housing prices fall to sustainable levels.  Yes, they lost their current gamble on owning a home that they FREELY CHOSE to buy and often refinance at inflated prices via mortgage and home equity loans/lines, but they are much more likely to be in a winning gamble when they buy a new home at a much lower price.  Your support for the Paulnankebush Bailout of Global Financial Investors and Employees would just make homeowners wait longer for housing prices to fall to the same sustainable level, at which point they could buy a new home.
* Your Save America Plan puts the losses where they belong...with the people, funds, and companies -- U.S. and FOREIGN -- that FREELY CHOSE to invest in, and/or work for, financial companies.  The same thing happened with the dot com bust and other burst bubbles where nobody bailed out the investors and employees.  This is the way it should be.  The investors and employees made the gamble in anticipation of making huge profits and/or enormous wages; they deserve to take the profit when the gamble succeeds…and the loss when the gamble fails.  On the contrary, the losers in the Paulnankebush Bailout of Global Financial Investors and Employees are the American taxpayers who you -- acting as THIEVES -- would force to transfer their wealth to the people, funds, and companies -- U.S. and foreign --  that FREELY CHOSE to invest in, and/or work for, financial companies.
* Your Save America plan keeps the responsibility and accountability where it has a successful track record, with the FDIC, NCUA, SIPC, and Federal Reserve.  Your support for the Paulnankebush Bailout of Global Financial Investors and Employees would place the blame on your shoulders, and unchecked power in the hands of a Treasury with strong ties to Wall Street and much less experience resolving such a crisis.

Instead of focusing your efforts on the thieving Paulnankebush Bailout of Global Financial Investors and Employees, please focus your efforts on improving your Save America Plan by taking these actions:
* Nationalize the SIPC so that like the FDIC and NCUA it's backed by the full faith and credit of the U.S. Government, with financial companies paying risk-based premiums so that it too has a net cost of $0 to American taxpayers over medium term time horizons.
* Nationalize and make permanent the one year money market insurance plan so that like the FDIC and NCUA it's backed by the full faith and credit of the U.S. Government, with financial companies paying risk-based premiums so that it too has a net cost of $0 to American taxpayers over medium term time horizons.  Make it a responsibility of FDIC or NCUA, rather than creating a new government agency.
* Establish controls over the Federal Reserve so that it does not sneak the Paulnankebush Bailout of Global Financial Investors and Employees past the rest of the U.S. Government by making short term loans that are too large relative to the low value of the high risk debt it accepts as collateral.
* Ensure the FDIC, NCUA, SIPC, money market insurance plan, and Federal Reserve are able to obtain the temporary peak resources they need to handle the crisis.
* Encourage financial companies to cut their dividends to preserve capital, and raise the interest rates they offer to attract capital.
* To reduce panic, educate -- through a single unified campaign -- deposit and investment account holders about their FDIC, NCUA, SIPC, and money market insurance rights.
* To increase Americans' wealth, educate homeowners who are in trouble to 1) renegotiate their mortgages and home equity loans/lines and 2) if the mortgage holders are unwilling to renegotiate, to sign their house over to the mortgage holder, rent for a while, and then buy a new home when housing prices fall to sustainable levels.
* To increase Americans' wealth, educate investors in poorly managed financial companies to sell their holdings, take their losses, and reinvest what they have left...diversified across some combination of deposit accounts, money market funds, bonds, stocks, real estate, small businesses, etc.

You have an historic CHOICE now.
* You can SUPPORT and strengthen the Save America Plan you've already created.  You'll go down in history as one of the WISE people who had the foresight mitigate a crisis nearing the scope of the Great Depression WITHOUT stealing from the American taxpayers to give to the people, funds, and companies -- U.S. and foreign --  that freely chose to invest in, and/or work for, financial companies.
* You can UNDERMINE the Save America Plan you've already created and instead support the Paulnankebush Bailout of Global Financial Investors and Employees.  You'll go down in history as a THIEF made the crisis worse by stealing from the American taxpayers -- who can ill afford it -- to give to the people, funds, and companies -- U.S. and foreign --  that freely chose to invest in, and/or work for, financial companies.  You'll also go down in history as one of the people who made the crisis worse by crippling American taxpayers financially at the very moment the American economy could least afford it.

I understand that I will suffer pain from this crisis, just like almost everyone else living in the U.S.  It's inevitable.  I freely chose to own a home via a mortgage.  I freely chose to invest some money in financial companies.  I freely chose to be part of the American economy.  I am accountable for my decisions and their consequences.

However, I am NOT accountable for the decisions and consequences made by investors and employees of financial companies, who made their own free choices.  They are!

Now, you have a choice.  I will hold you accountable for your choice and its consequences.  If you support the thieving Paulnankebush Bailout of Global Financial Investors and Employees, I will vote against you and your party in the November election and I will similarly work to have you fired if you are an appointed, rather than elected, official. 

I am urging my family, friends, colleagues, and fellow citizens across the nation to do the same.

It's your choice.

Socialism has led tyrannical 3rd world governments taking ownership of economically significant energy assets.  Those inefficiencies of government enterprises are unconstrained when income generated is abused as an economic weapon instead of efficiently utilized as capital.  We've thrown our money at oil monkeys, now the oil monkeys are throwing it back.