Baseball stealing a sign from Wall Street. (Commentary).

THE collapse of Long-Term Capital Management in 1998 struck many as the end of an era on Wall Street.

For almost 20 years, financial engineers had harnessed the computer to create new types of assets. Each time an asset class was born -- futures, options, swaps, collateralized mortgage obligations -- it was misunderstood and mispriced. The mispricing presented a huge opportunity for the guys with the analytical powers to see it.

The most famous of these was John Meriwether, who imported a bunch of skinny intellectuals onto the he-mannish Salomon Brothers trading floor -- and then exported them into his own firm, LTCM.

The failure of LTCM was widely interpreted as proof there was a limit to the use of raw brainpower in the financial markets. Out went the guys who thought in math and in came... what? That was the problem. The old fly-by-the-feel-of-your-gut approach to Wall Street trading was as dead as ever. The end of LTCM didn't signify the end of the Wall Street egghead so much as his total assimilation.

LTCM failed, in part, because there was so much brainpower in the financial markets that brainpower, by itself, lost its unfair advantage. A revolution had occurred on Wall Street, and it had consumed the original revolutionaries.

Spreading to baseball

The effects of that revolution are still being felt, in all sorts of strange ways, in all sorts of strange places. Major League Baseball, for instance.

For five years now, there's been a striking market anomaly in professional baseball. The people who run the game have argued that the widening gap between rich teams and poor teams has created a crisis, because only rich teams can win.

And for the most part that's been true. But for just as many years there's been one great exception: the Oakland A's. Working with one of the lowest payrolls, they've won more regular season games than all but one other team, the Seattle Mariners.

How on earth does a team that spends $40 million dollars on players trounce teams that spend three times as much? How can $40 million routinely take the field against $110 million and be viewed as the favorite?

The short answer (ignored by the people who run baseball) is that the market for baseball players is astonishingly inefficient: ballplayers are mispriced as badly as mortgage bonds or interest rate swaps were in 1983.

Pitchers are paid, in part, for how hard they throw rather than how efficiently they record outs. Hitters are rewarded for high batting averages when their on-base percentage offers a far better measurement of their contribution to the team's run totals. Foot speed and fielding skills tend to be dramatically overpriced.

Veterans are paid as if they were irreplaceable when in many cases there's little difference between them and some guy in Triple-A ball willing to work for the minimum wage. Amateur players are valued, in part, on the shape of their bodies and even the structures of their faces.

What's taken for success on a baseball field is often just good luck (the double that is actually a fly ball lost in the sun) and what's interpreted as failure is often just bad luck (the home run pulled back into the field of play by the gifted center fielder.)

Mining the stats

All this and more can be shown by the close analysis of baseball statistics -- made possible, or at any rate economical, by cheap computing power. For anyone willing to shun the conventional gut-feel approach to the market for baseball players and find more accurate ways to price players and their skills, there's opportunity.

New financial assets tend to be inefficient because they are complicated and new. The market for baseball players has been shown to be inefficient because new tools arose to value the players and every professional baseball team but one ignored them.

The Oakland A's front-office people are, in a word, arbitrageurs. What's interesting about this is that the inspiration is Wall Street. They've borrowed a way of thinking about financial assets and applied it, with astonishing results.

Their most important outside advisers have been a couple of guys who, before they started thinking about ballplayers, made their living finding trading opportunities on the Chicago financial exchanges. Their role model isn't Branch Rickey; it's Warren Buffett.

Wall Street people have been fond of using sports metaphors to make their jobs seem more exciting than they are. There's something refreshing about sports guys grabbing for financial metaphors to make sense of their lives.

The financial markets have helped to make brains more respectable to men of action. They have hammered into the minds of a generation of young, ambitious people the connection between "inefficiency" and "opportunity." John Meriwether himself might be in financial remission. But his spirit is alive and well, and making a mockery of an old-fashioned market in the Oakland Coliseum.

Michael Lewis, whose new book is "MoneyBall," is a columnist for Bloomberg News.