The New York Times had a very interesting article recently on the demise of the efficient markets hypothesis. The proximate cause of this demise is the failure of the hypothesis to explain the recent financial meltdown.
How close markets would get to the efficiency ideal, assuming away problems of meaning and definition, would depend mostly on the nature of the error correction system.
Yet even this modification may not go far enough. Entrepreneurs make mistakes, even systematic ones .... This could go on for some time under the right cooperating conditions.
.... the conditions for the speculative bubble were laid by the low interest-rate policy of the Federal Reserve System. Without this groundwork any bubble would not have gotten very far .... low interest rates encourage greater risk-taking.
The problem has not been the existence of credit default swaps, mortgage-backed securities and other forms of securitized lending per se. It has been in the crisis-enabling context.