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From this article by Lisandro 'Leloy' Claudio, a Philippine/a Filipino professor of history, politics, South & Southeast Asian Studies (and not necessarily of finance, economics, mathematics or statistics)

a country can become a sad place if its most brilliant minds prioritize profit. In the 1990s and 2000s, most of the top graduates of the American Ivy League went to big Wall Street banks, and it was these geniuses who caused the financial crash of 2008. The world would have been better off if they had done something else.

Question 1: Was the financial crash of 2008 caused by top graduates of the American Ivy Leagues working at wall street banks?

Question 2 and context: Ok I'm gonna be explicit here to be clear at the cost of sounding, or even actually being, arrogant or ignorant. When I 1st read this like I was just about to start grad school in mathematical finance/quantitative finance. No offense or anything, but I actually kinda figured that the prof is not only wrong about this but has no idea what e is talking about. Does the quote make substantial sense?

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Question 1: Was the financial crash of 2008 caused by top graduates of the American Ivy Leagues working at wall street banks?

No for several reasons.

  1. First financial crises are unavoidable, no matter what system we have. Good systems mitigate the likelihood of financial crises and can soften the blow of financial crises but there is no way how one can completely avoid financial crises.

  2. It is agreed by literature that It is generally agreed that root causes of the were financial deregulation, macroeconomic imbalances, underlying moral hazard issues inherent in the finance sector, past bailouts, changes in the tax code that incentivize more leverage and also some macro policy mistakes.

    It is generally agreed that it is very difficult to pin Great Recession on single primary cause (see Eichengreen Hall of Mirrors, Stiglitz 2009, Verick et al 2010 or Jagannathan et al 2010 ). However, there is no literature suggesting that financial crisis or the subsequent recession could be avoided if less educated people would be in charge. Such assertion is prima facie absurd frankly.

    Synthesizing the literature mentioned in the previous paragraph, most important cause arguably was the fact that banks were allowed to become extremely overleveraged by regulatory decisions, such as the SECs 2004 decision to allow banks to have more leverage and by completely letting shadow banks to fly under the radar of financial regulation.

    Thus the 2008 financial crisis was systemic failure not something you can pin on one person or firm or a group of people and it was primarily regulatory failure (although I am not suggesting any of the regulators is to blame, at that time it was generally thought that securitization 'conquered' risk so letting firms overleverage was thought not to be a problem). It would be like trying to blame doctors for causing their patients to die by not washing hands before people discovered germ theory or thinking that if less educated doctors were in place it could be averted.

Question 2 ... Does the quote make substantial sense?

No, it does not make substantial sense. There is simply no evidence for what the professor is claiming as discussed above.

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  • $\begingroup$ thanks 1muflon1♦ ! re 'financial crises are unavoidable', do you have a reference for this? or this your opinion? or what? i mean would nassim nicholas taleb agree with this? or do you mean this in a way 'it's unavoidable that we do have some fire related accidents once in awhile. otherwise why have firefighters in the 1st place?' ? well one, not necessarily I/me/myself, might say 'i expect fires maybe in a building or a forest but not for the whole world'. $\endgroup$
    – BCLC
    Jul 27 at 15:14
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    $\begingroup$ @BCLC it is not my opinion, I did not provide reference for that because that is common knowledge in economics, you can literary read it any any economics textbook that discuses economic crises. I don't think that there ever even was anyone who would ever claim these are avoidable, even during the great moderation the idea was that these can be smoothed but not avoided. $\endgroup$
    – 1muflon1
    Jul 27 at 15:25
  • $\begingroup$ (update: it's done. THANK YOU XD) 1 - 1muflon1♦ btw i added a sort of 2nd question w/c is supposedly mainly context to the 1st question. may you please address the 2nd question iydmma? i believe and hope this edit is not substantial enough to change the whole post. in 2nd question i kinda ask if the prof has any idea what e is talking about $\endgroup$
    – BCLC
    Jul 27 at 15:31
  • $\begingroup$ 2 - 1muflon1♦ right yeah re crisis/crises, i was unclear so i actually edited my comment. i meant to ask about the scale of the crisis/crises. perhaps you saw only the original comment and not yet the edit. in my comment's edit i talked about an analogy with fire accidents $\endgroup$
    – BCLC
    Jul 27 at 15:31
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    $\begingroup$ @BCLC 1. World crises are also unavoidable in interconnected world. The reason why crises became global is that they spill via trade to other countries. An analogy is pandemic, unless you impose strict lockdown (and even that might not fully help) you can’t prevent spread of disease from one country to another. $\endgroup$
    – 1muflon1
    Jul 27 at 15:35

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