While Vito’s underestimation of Sollozzo was his greatest mistake, the family made another critical error, even earlier, that may have contributed significantly to the setup:

While pondering how to whack Paulie, Clemenza believes that his treason did not “reflect on the caporegime’s judgment.” But, as we read on, we learn that Paulie, despite being given a “good living” (a percentage of an East Side book and a union payroll slot), augmented his income by engaging in “free-lance stickups, strictly against the Family rules…” [emphasis added]. But Clemenza regarded this violation as “a sign of the man’s worth…high-spiritedness.”

Uh, Pete: how can violating strict family rules constitute a measure of a man’s worth to the family? It’s prima facie evidence of dissatisfaction with the income you rewarded him with, and a leading indicator of more such activity to come. Those free-lance stickups could have exposed Paulie to the danger of arrest for armed robbery—a charge that carried a sufficiently lengthy sentence as to loosen the tongue and break omerta. And, at minimum, it shows contempt for your (and your Don’s) authority—a leading indicator for the treason that lay ahead. You should have disciplined him severely the first time he violated the “strict” family rule—and whacked him if he did it again. In fact, Vito or Sonny should have disciplined or whacked you for your negligence.