I am not a baseball fan. I have been to only one baseball game. This was an LA Dodgers game when I was working in LA. The Dodgers lost, and the highlight for me was the hotdog. But baseball is known to be very nerd friendly as it generates lots of stats: batting averages, pitching averages etc. At the moment, I am reading and enjoying a book called The Signal and the Noise by Nate Silver. He started out analysing baseball stats before moving on to analyse stats outside sport. So, a question for you: Which of the two industries below uses a careful detailed analysis of meaningful statistics, in which the scientific method is applied, and errors are systematically weeded out:

1. The industry that values mortgages, in particular the agencies that assess the probability that a mortgage will not be repaid.
2. Professional baseball in the United States.

The answer, obviously, is 2. This answer leads to a second question: How come we are living in a world where a professional sport is fundamentally run a lot better than the financial institutions that have all our money? Seriously, where did we go wrong?

My guess (and it is just a guess) is that the problem is a combination of a lack of transparency, and the wrong incentives to the people at the top of banks. Success and failure in sport is usually very clear, very transparent, especially to the fans of a team that is failing. For complex financial instruments, such as the ones that played a major role in creating the recession in 2008, failure may not be clear until it is too late – this is a little like only being able to assess the progress of a sports team at the end of the season, when it is already too late.

This transparency in sports leads to reasonably good alignment between the objectives of the management of a team and the fans. The coach of a baseball team and the fans benefit from the same thing: winning.

The way our pensions and savings are invested, is much less transparent. And it is not clear to me that the interests of bank trader keen on a large end-of-year bonus, and my interest in retiring in comfort in 25 years time, are necessarily aligned. This is probably quite a big problem, that shows no sign of going away.