Thomas, in my opinion the common point in the big failures you explain such as LTCM, the dot com bubble and the mortgage crisis, is not only the lack of reliance on a model, since by definition, a model is a simplified version of reality and should not be taken as a unique source of truth. I believe that the most important fact is the exhuberance of risk and fund size, and the complacency of auditors, rating agencies, and sometimes the lack of appropriate regulation for certain market participants.

I agree that finance needs to discuss how to include new valuation and portfolio construction models, but that will not solve the problem of excess ambition and lack of regulation. At best, it would only drive finance professionals again to an illusion of control by rationalizing and reducing the issue.

Finance and academic theory should not overcompensate for the lack of responsibility and behaviour of certain market participants.