The New York Times has a story delving into the question, how could so many smart people buy so much bad debt. The article makes clear that the warning signs of impending financial trouble were multiple and obvious. Still, we’re supposed to believe that hedge fund buccaneers, private equity money managers, and other top financial talent didn’t understand the market.

“Buyers didn’t fully understand what they were getting,” said Rajiv Sobti, a portfolio manager at Proxima Alfa Investments, a New York hedge fund. In Wall Street parlance, Mr. Sobti added, “They were sold, not bought. The actual buyers were often not mortgage specialists, but generalists who looked at these bonds as a way of earning higher yields.”

I don’t buy it. Almost all Wall Street money mavens sport advanced degrees. They earn millions of dollars a year in bonuses. They work long hours, with plenty of analytical firepower on call, from supercomputers to Phds. No, what was at work was the time-honored greater fool theory.

Sure, the subprime stuff was risky and valuations dubious. But so much money was being made that the best-and-brightest convinced themselves that they’d always be able to find a greater fool to unload their bets on when the time came. Yet, as financial history has shown again and again, when the turmoil strikes the “fools” disappear.