Robert Waldmann over at Angry Bear hits the ball right out of the park with “Price Revelation” is Mysticism. The post covers so much ground with implications so counter to the grain (too bad he does not take them beyond CDs) that it is quite simply elegant. His clarifications in the comments section are equally valuable. Much of financial engineering has been based on the idea that markets always get the prices right but that it is possible to beat the markets. That is, simultaneously clinging to the hard version of the efficient markets hypothesis and not.
At some point we will have to open up the debate on the difference between price formation and price selection. Neoclassicals have made a living off collapsing the two.