Chicago economics directly inspired the financial derivatives and deregulation behind the crisis

Evidence

Far from being the conventional generic blanket disparagement of “freshwater economics” (such as that spread by Paul Krugman, Brad DeLong, George Akerlof, and others), this points to the fact that Chicago was the prime initial incubator for modern finance theory, which has indeed provided direct intellectual inspiration and justification for most of the so-called innovation in financial derivatives and automated equity trading of the last three decades. There is also the Chicago inspiration for the theory of “public choice” and Stigler’s theory of regulation, so central in the modern development of government (anti)regulation. In other words, Chicago was the intellectual godfather of modern “securitization” and privatized regulation, among other activities. — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 497

Categorization

• XREF: Connects to the ‘thought collective’ theme of the whole book — Chicago as institutional hub feeding public choice theory and deregulation ideology. — connects to: The Black-Scholes methodology reshaped economists’ and regulators’ thinking beyond derivatives. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 99; Mandelbrot deeply influenced Chicago finance via rigorous expectations theory — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 496; Economists’ endorsement legitimated derivatives markets that regulators viewed as gambling — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1135 (+3 more)

Broader Connections

• Packing risky mortgages into opaque derivatives under weak regulation enabled the financial crisis #corroborates (0.80) — Albert Bandura, Moral Disengagement, 1492
• Financial engineering naturalizes crisis to justify yet more markets #expands (0.75) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 958