Was the financial crash of 2008 caused by top graduates of the American Ivy Leagues working at wall street banks?

Fairly obviously not. The problems of 2008 were the consequence of a great many people (far more than the total number of Ivy League graduates), all acting in ways that they thought would be profitable. It was mostly not the actions themselves, but unforeseen interactions that led to problems.

Take for instance mortgage backed securities. The people who invented them thought they had a good idea: bundle a bunch of mortgages, and you reduce the risk of one defaulting: https://www.thebalance.com/role-of-derivatives-in-creating-mortgage-crisis-3970477

Mortgage companies thought this was a good idea: we can bundle up our mortgages and sell them to securities companies, thus allowing us to lend more mortgages. Since there weren't all that many people with good qualifications and 20% down payments out there, they had to relax the qualifications a bit. But that's no problem: one or two defaults in a bundle surely aren't going to be a problem: after all, that's why those bundled securities were invented in the first place. And so you got into a cycle where the end result was zero-doc, no down payment mortgages.

Potential homebuyers thought this was great: the economy's doing well, I can make the payments and get on the home appreciation ladder. More people buying houses increases the price, via supply & demand.

That's fine, as long as folks still have the good jobs they had when they took out the mortgage. The problem is what happens when the economy takes one of its periodic downturns, a bunch of people are out of jobs and can't make their mortgage payments. You have a bunch of foreclosed houses, house prices drop, people get scared because they're underwater on the house and panic sell, prices drop still further, those securities become so much worthless paper, companies that hold a lot of that paper (expecting regular dividends from them) no longer have that cash flow and perhaps go bankrupt...

So it wasn't the fault of any one person or small group, but of the large-scale interactions between groups, each acting in perfectly reasonable ways as seen within their smaller compass.

What you referred to about "top graduates" was a "symptom," but not the underlying "disease."

The real problem was the "pedal to the medal," and "anything goes" mentality of the turn of the century. This was particularly true of the tech boom and bust, with financial products (e.g. "ninja" loans. So the Wall Street firms hired a disproportionate number of finance graduates, and the tech companies a disproportionate number of engineering graduates. A similar thing happened in the "roaring" 1920s, that ended with the 1929 crash.

I am the author of A Modern Approach to Graham and Dodd Investing, a book published in 2004 that predicted a "1929" type crash in "2004-2006," that happened in 2008.

I worked in the financial services industry back in 2007/8 in software engineering and saw the crash happen with a front row seat.

The root cause of the crash was the massive overvaluation of CDS (Credit Default Swap) instruments, combined with new software (created by the company I was working for) that enabled them to be traded in high volumes, combined with the mortgages that comprised those CDS instruments defaulting en masse.

Those mortgages had been the result of laws passed in the USA in the mid/late 1970s to make it easier for poor people to get mortgages. Problem was the buildings in question and the people that had gotten those mortgages didn't cover the mortgages and by the time they ran out exactly 30 years later (which is the standard duration of a mortgage) the buildings were worth less than the value of the mortgage and the people owning them didn't have the money to make up the rest, leaving the holders of the CDSs financially liable for massive payments to the lien holders (that's how CDSs work).

The result was that a few small financial institutions got into accute cash flow problems, leading to a massive selloff of their portfolios. This triggered automated trading systems to sell all stock in these institutions. This in turn triggered a massive selloff of stock in all financial institutions across the board. A snowball effect was achieved that had automated systems sell just about everything they could at whatever price they could get.

The blocks to prevent catastrophe after previous crashes had been changed from manual intervention (trading used to be stopped when certain drops in major indicators were reached until manually assumed) to automated systems, automated systems which happily assumed that the panic was no reason to stop the markets, effectively removing the blocks completely.

My job involved among other things visualising the value development of CDS instruments, and maintaining the predictive software that aided in their pricing. As such I (and the team I was part of) were some of the only people in the industry who knew anything about how these things worked (even most of the actual traders had no idea, all they knew was that they had been going up in price rapidly until then so must be a good deal).

That's the real story.

During the crisis I worked in the team that was creating pricers for the complex derivatives in the bank where CDSs were invented.

2007-8 crisis has many reasons. The origin of it lies in easing the rules for lending in 1980s by a certain US president who wanted to win re-election. This enabled mortgage borrowing for so-called NINJA (no income, no job or assets) voters. At some point the real estate market got over-heated, making subprime mortgages a toxic asset, and then there was a domino effect.

Many parties are to blame for it. If you want a very careful detangling of all causes, to understand the role of politicians, regulators, rating agencies, banks obviously, and more, I recommend Andrew Lo's (MIT) "Adaptive markets", chapter 9 (ca. 30 pages).

CDS on a name is equivalent to a portfolio of 2 bonds: buying a CDS on a name is like buying this name's bond and selling a riskless bond. There were some technical problems with CDSs (before the crisis they were traded at par, so the CDSs on the same name could not be offset). After the crisis, financial industries has solved this by setting up a clearing system and by changing the was CDSs are traded (fixed spread instead of trading at par). I wish other parties who are to blame for this crisis were acting as swiftly and efficiently…

If you look a bit further down in history, for cultural reasons of the 2007–8 crisis, you might want to watch It's a Wonderful Life, a cult American Xmas movie (1946) that involves subprime lending and voluntary (!!!) bailing out of a banker by the general public. When one watches it in the context of 2007–8, it's jaw-dropping :)

The author was mixing up cause and effect.

The position that the 2008 crash was largely caused by the behavior of lending institutions is quite supportable. The lending bubble was pretty much indisputably the trigger for the crash. If not for the fortunate eventuality of the head of the Fed at the time having been the person who literally wrote the book on the crash of 1929, the results may well have been much more like the Great Depression than they ended up being.

Yes, it takes two to tango, and there were perhaps millions of individual borrowers out there happy to snap up that cheap credit lenders were offering. But borrowers are not necessarily expected to be financial experts, whereas lenders are. Its the lender's responsibility to verify that a rando off the street can pay off their loan, and that its properly secured in case they can't. Lenders were just flat out not doing their jobs.

Is it also a fact that many of these institutions were soaking up what one may consider the brightest young minds of that generation? That's much more debatable. However, there's certainly always going to be sharp young people who just want to train themselves to use their skills in whatever arena is currently hottest, and most likely to make them rich. In the early 2000's, lending was definitely where the action was. Was that a sign there was perhaps a problem there? Sure! Was it the cause? Probably more of an effect.

Its right to ask why lenders were suddenly acting that way. In fact, banks' bundling of loans into securities like they were doing had been explicitly made illegal in the wake of the 1929 crash, as it was deemed to have been one of the causes of the crash back then as well. It had just been re-legalized in 1999 and took all of 9 years to crash the economy again.

Now let's ask, "Why was this behavior relegalized, if it was known to cause financial crashes?" This was part of the general attitude of "deregulation" brought into government in the wake of the Reagan Revolution in 1980, where lawmakers of his particular school of thought fought to reprioritize business convenience a bit more over whatever public safety those regulations were there to protect.