Basically the financial models were not correct. And investors and portfolio managers, with great leverage, relied on the models heavily. Ratings agencies obscured the truth.
Nice quote -- "Nassim Nicholas Taleb, hedge fund manager and author of The Black Swan, is particularly harsh when it comes to the copula. "People got very excited about the Gaussian copula because of its mathematical elegance, but the thing never worked," he says. "Co-association between securities is not measurable using correlation," because past history can never prepare you for that one day when everything goes south. "Anything that relies on correlation is charlatanism.""
http://www.wired.com/techbiz/it/magazine/17-03/wp_quant?currentPage=all
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