It is the year 2005. An everyman — let us call him “Jim”— buys a house for $400,000.

The house is actually worth $200,000, but its price has risen dramatically because, for whatever reason, lots of investors have been buying houses lately.

Jim cannot afford this house because he makes $20,000 per year, but he is able to acquire a mortgage anyway from “Lender A,” who charges him a high interest rate because he can’t afford the mortgage in the first place. Lender A then sells Jim’s mortgage to a company called, for the sake of illustration, “Lehman Brothers.”

After Jim has paid about $10,000 on the mortgage, he stops paying because he can no longer keep pace with the interest. Lender A forecloses on the house, which is now selling for $200,000 because everyone has stopped buying houses and has moved onto buying other things (like subprime mortgage funds). Given that Lender A now has $210,000 to pay to the holders of a $400,000 mortgage, how much has Lehman Brothers lost?

This sounds like a simple problem of subtraction, but it is in fact a question so thorny that years from now, experts will still be trying to decipher the complex financial implications of the deals that led Lehman and other major investment firms to their collapse. Even a partial explanation of how Lehman Brothers accumulated over $600 billion in debt would need to involve lengthy and bewildering discussion of “tranching,” “hedging,” and “leveraging”; “CMOs” and “CDOs.”

When the narrative is framed in these terms, we realize a fundamental truth about investing: it’s hard to understand, and it’s apparently even harder to make any money doing it. Investing is so hard to do, in fact, that all five of the major investment banks in America have disappeared in the space of a single year.

Predictably, this has invited a stampede of blame-mongering commentary. Editorialists now bandy about highfalutin phrases like “uncontrolled avarice” and “irrational exuberance” to condemn the behavior of Wall Street executives leading up to the subprime mortgage crisis. In one particularly shrill article in Time Magazine, Andy Serwer and Allan Sloan allege that Wall Street firms “created, bought, sold and traded securities that were too complex for them to fully understand.”

Serwer and Sloan, like many other financial commentators, try to cast Lehman as a firm suffering from a lack of coherent leadership, shambling mindlessly after each new fad investment. Yet if this portrayal is accurate, then why was Lehman Brothers CEO Richard Fuld compensated with nearly half a billion dollars in salary, bonuses, and stock options from the company? Would the board of directors really have agreed to pay Fuld this much money if he were anything short of a modern Midas, a genuine financial visionary? The mere suggestion of this is laughable to anyone who is even remotely acquainted with the principles of the Free Market.

Moreover, Lehman employed thousands of highly paid analysts who worked eighty-hour weeks to boldly explore new investment strategies. Many of these analysts held degrees from Ivy League schools?and we all know how seldom the Ivy League produces incompetent people.

No, Lehman Brothers did not collapse because it was an inept company- on the contrary, it was one of the most brilliant investing firms in the world. It enjoyed such an overflow of intellectual capital that it was given to sharing pearls of wisdom on its Website in articles with sharp titles like “A Tactical Case for Deep Value” and “The Business of Climate Change” (required reading for those who are interested in emulating its fiscal strategies). If Lehman, with its incredible pool of brains and financial resources, could not turn a profit by investing, then I cannot imagine how anyone else could be capable of doing so.

Some observers seem to think that the government can succeed where the great minds at Lehman failed, and clamor for expanded federal regulation of Wall Street. I, on the other hand, firmly contend that we should allow the Free Market to heal the current crisis naturally.

As firms begin to realize that investment is no longer a profitable pursuit, they will begin to move out of the field entirely. We have already seen this process at work in the past week, as the last two major investment banks, Morgan Stanley and Goldman Sachs, have converted themselves into bank holding companies. I predict that over time, this ruinous strategy called “investing” will be abandoned entirely, rendering moot any effort that will have been spent on regulation.

In the meantime, if Yale’s chief investment officer, David Swensen, is the financial visionary that people claim that he is, then he will divest Yale’s endowment — not from Darfur, as students have demanded in recent years, but from investment in general. Instead, we should convert the money into simple, functional items, such as shovels, grain, and space heaters. If current trends are any indication, the barter system is going to be pretty hot in the coming years.