So, why didn’t anyone see this coming? Queen Elizabeth asked the British economists assembled at the London School of Economics in 2009, who, like analysts everywhere, had failed to see the crisis coming. The answer lies in the way banks measure and manage risk, the third of our seemingly unrelated elements that together generated the crisis and that are quintessentially private-sector, not public-sector failings. Repo runs can start it, and derivatives can amplify it, but to be truly blindsided by a crisis of this magnitude you need to have a theory of risk that denies that catastrophic events can happen in the first place, and then leave it entirely to the self-interested private sector to manage that risk. Unfortunately, almost the entire global financial system worked with just such a theory of risk management.

Mark Blyth, Austerity, loc. 100