<blockquote>
<p>Question 1: Was the financial crash of 2008 caused by top graduates of the American Ivy Leagues working at wall street banks?</p>
</blockquote>
<p>No for several reasons.</p>
<ol>
<li><p>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.</p>
</li>
<li><p>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.</p>
<p>It is generally agreed that it is very difficult to pin Great Recession on single primary cause (see Eichengreen Hall of Mirrors, <a href="https://www8.gsb.columbia.edu/faculty/jstiglitz/sites/jstiglitz/files/2009_Interpreting_Causes.pdf" rel="nofollow noreferrer">Stiglitz 2009</a>, <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1631069" rel="nofollow noreferrer">Verick et al  2010</a> or <a href="https://www.sciencedirect.com/science/article/abs/pii/S1042957312000277?casa_token=BxyUO4ePGIoAAAAA:pBiPcZeUL-2Xtuz9RLZSjPNaafvtetrEtDjFOVp77hbYp1VbmAPg9U7cl8VzFWHQCWzAa3qr45AW" rel="nofollow noreferrer">Jagannathan et al 2010</a> ).  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.</p>
<p>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.</p>
<p>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.</p>
</li>
</ol>
<blockquote>
<p>Question 2 ... Does the quote make substantial sense?</p>
</blockquote>
<p>No, it does not make substantial sense. There is simply no evidence for what the professor is claiming as discussed above.</p>

CC BY-SA 4.0
2021-07-27T15:14:00.517Z
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'.
BCLC
CC BY-SA 4.0
2021-07-27T15:25:37.680Z
@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.
1muflon1
CC BY-SA 4.0
2021-07-27T15:31:31.567Z
(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
BCLC
CC BY-SA 4.0
2021-07-27T15:31:34.420Z
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
BCLC
CC BY-SA 4.0
2021-07-27T15:31:45.277Z
3 - re common knowledge, so, kind of a [folklore](https://academia.stackexchange.com/questions/116019/inadmissible-theorems-in-research/116035#116035) basically?
BCLC
CC BY-SA 4.0
2021-07-27T15:34:16.927Z
4 - wait actually to also ask another thing. do you agree that the prof has no idea what e is talking about?
BCLC
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2021-07-27T15:35:23.300Z
@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.
1muflon1
CC BY-SA 4.0
2021-07-27T15:37:37.970Z
re 1 - ok but what would you say to the fire analogy? (wait...analysing comment further...) ah so fire accidents don't spread like that much because places are not that interconnected in this regard the way places are globally interconnected for pandemics and economic/financial crises?
BCLC
CC BY-SA 4.0
2021-07-27T15:38:43.007Z
@BCLC yes also can I pls first respond to also previous questions otherwise it’s hard to go back
1muflon1
CC BY-SA 4.0
2021-07-27T15:42:05.047Z
@BCLC 2. No by common knowledge in economics I mean something so widely known it does not need to be cited for example in mathematics Pythagorean theorem is so widely known that you can simply state a^2+b^2=c^2 for right angled triangles without citing Pythagoras or in physics you can state that planets orbit the sun without citing copernicus 3. Also I agree the professor likely has no idea and just tries to promote their favorite subject
1muflon1
CC BY-SA 4.0
2021-07-28T16:53:55.543Z
"there is no way how one can completely avoid financial crises." - strictly speaking, you can't have them if you don't have finances.
Criticize SE actions means ban
CC BY-SA 4.0
2021-07-28T17:16:10.480Z
@user253751 financial sector is a sector that allocates capital in the economy, any country throughout history had one. We have evidence for finance as far as our historical records go. In fact that’s probably the origin of writing and mathematics. When it comes to modern societies it is especially impossible for them to exist without one.
1muflon1
CC BY-SA 4.0
2021-07-28T17:17:30.110Z
@1muflon1 O+<   <- This is Bob (sleeping). He lives on an island all alone by himself. Please explain how the island could suffer a financial crash.
Criticize SE actions means ban
CC BY-SA 4.0
2021-07-28T17:19:28.997Z
@user253751 bob does not exist in modern society, or any for that matter, I think I sufficiently clarified in the previous comment that I was talking about countries and societies *especially* modern ones, so I don’t see any reason for such straw-man
1muflon1
CC BY-SA 4.0
2021-07-27T15:00:04.683Z
2021-07-27T20:37:03.777Z
2021-07-27T20:37:03.777Z
1muflon1
<p>From <a href="https://www.philstar.com/lifestyle/young-star/2013/03/15/919691/why-you-should-take-liberal-arts-course" rel="nofollow noreferrer">this article</a> by Lisandro 'Leloy' Claudio, a Philippine/a Filipino professor of history, politics, South &amp; Southeast Asian Studies (and <strong>not necessarily of finance, economics, mathematics or statistics</strong>)</p>
<blockquote>
<p>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.</p>
</blockquote>
<p><strong>Question 1</strong>: Was the financial crash of 2008 caused by top graduates of the American Ivy Leagues working at wall street banks?</p>
<p><strong>Question 2 and context</strong>: 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 <a href="https://quant.stackexchange.com/questions/12729/do-quants-need-to-know-accounting">grad school in mathematical finance/quantitative finance</a>. 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 <a href="https://en.wikipedia.org/wiki/Substantial_truth" rel="nofollow noreferrer">substantial</a> sense?</p>

<finance><financial-markets><history><economic-crisis><economic-bubble>
Was the financial crash of 2008 caused by top graduates of the American Ivy Leagues working at wall street banks?
BCLC
# Was the financial crash of 2008 caused by top graduates of the American Ivy Leagues working at wall street banks?

(Asked by: username_0 on 2021-07-27)

From [this article](https://www.philstar.com/lifestyle/young-star/2013/03/15/919691/why-you-should-take-liberal-arts-course) 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](https://quant.stackexchange.com/questions/12729/do-quants-need-to-know-accounting). 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](https://en.wikipedia.org/wiki/Substantial_truth) sense?

**Tags:** finance, financial-markets, history, economic-crisis, economic-bubble


---

## 1 answers

### Answer by username_1 on 2021-07-27. Score: 2

> 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](https://www8.gsb.columbia.edu/faculty/jstiglitz/sites/jstiglitz/files/2009_Interpreting_Causes.pdf), [Verick et al 2010](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1631069) or [Jagannathan et al 2010](https://www.sciencedirect.com/science/article/abs/pii/S1042957312000277?casa_token=BxyUO4ePGIoAAAAA:pBiPcZeUL-2Xtuz9RLZSjPNaafvtetrEtDjFOVp77hbYp1VbmAPg9U7cl8VzFWHQCWzAa3qr45AW) ). 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.

> **Comments:**
> **username_0**: thanks username_1♦ ! 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'.  
> **username_1**: @username_0 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.  
> **username_0**: (update: it's done. THANK YOU XD) 1 - username_1♦ 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  
> **username_0**: 2 - username_1♦ 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  
> **username_0**: 3 - re common knowledge, so, kind of a [folklore](https://academia.stackexchange.com/questions/116019/inadmissible-theorems-in-research/116035#116035) basically?  
> **username_0**: 4 - wait actually to also ask another thing. do you agree that the prof has no idea what e is talking about?  
> **username_1**: @username_0 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.  
> **username_0**: re 1 - ok but what would you say to the fire analogy? (wait...analysing comment further...) ah so fire accidents don't spread like that much because places are not that interconnected in this regard the way places are globally interconnected for pandemics and economic/financial crises?  
> **username_1**: @username_0 yes also can I pls first respond to also previous questions otherwise it’s hard to go back  
> **username_1**: @username_0 2. No by common knowledge in economics I mean something so widely known it does not need to be cited for example in mathematics Pythagorean theorem is so widely known that you can simply state a^2+b^2=c^2 for right angled triangles without citing Pythagoras or in physics you can state that planets orbit the sun without citing copernicus 3. Also I agree the professor likely has no idea and just tries to promote their favorite subject  
> **username_2**: "there is no way how one can completely avoid financial crises." - strictly speaking, you can't have them if you don't have finances.  
> **username_1**: @user253751 financial sector is a sector that allocates capital in the economy, any country throughout history had one. We have evidence for finance as far as our historical records go. In fact that’s probably the origin of writing and mathematics. When it comes to modern societies it is especially impossible for them to exist without one.  
> **username_2**: @username_1 O+<   <- This is Bob (sleeping). He lives on an island all alone by himself. Please explain how the island could suffer a financial crash.  
> **username_1**: @user253751 bob does not exist in modern society, or any for that matter, I think I sufficiently clarified in the previous comment that I was talking about countries and societies *especially* modern ones, so I don’t see any reason for such straw-man  

---

