Maybe This Financial System Can’t Be Fixed

Ten years after a crisis that brought the world to the brink of Armageddon, the people overseeing the world’s largest economy insist they’ve reduced the risk of another financial disaster. Just one problem: We need a different financial system, not just better risk management.

I had a front-row seat for the watershed event of the 2008 crisis, the failure of the investment bank Lehman Brothers Holdings Inc. I was a quantitative analyst for the hedge fund D.E. Shaw, of which Lehman owned 20 percent. I worked on modeling futures markets with Larry Summers, who at the time was a managing director. The crisis caught us unawares, as it did the most of the economic community. Our mathematical models had told us that such a disaster was vanishingly unlikely.