Is this business judgment?

At the first hearing of the Financial Crisis Inquiry Commission yesterday, Jamie Dimon, chief executive of JPMorgan Chase & Co., said a crucial blunder was "how we just missed that housing prices don't go up forever."  I don't actually believe this.  I think the correct statement is more along the lines of some form of rational herding.  But if we take that statement at face value, then it seems to me to suggest a great claim that the business judgment rule shouldn't apply.  To say that you invested in instruments dependent on housing prices rising indefinitely to be successful strikes me as saying you entered into precisely the type of no-win transaction not protected by the business judgment rule.

Another "defense" floating around is that, while people knew housing prices weren't going to keep rising forever, the underlying financial instruments were so complex that no one realized the magnitude of the risks they were taking.  Again, this strikes me as a failure to exercise business judgment.  In order to exercise business judgment you must have some basis upon which to weigh costs and benefits.  You can be wrong about your estimates, but entering into transactions knowing you don't know the risks looks like abdication of management responsibilities to me.  Again, rational herding arguments may save the day here for corporate managers.

Finally, what about loyalty?  If we accept that executives (1) entered into transactions whose success depended on housing prices rising indefinitely and (2) the underlying financial instruments were too complex for them to understand, then doesn't (3) they believed that even in the worst case scenario (whatever that was) they would be able to cash in and cash out personally before the excrement hit the fan = a duty of loyalty violation claim?

SJP