The wave of financial innovation in the 2000s was fuelled by the idea, in principle correct and fruitful, that the proliferation of new (and complex) financial instruments, allowing agents to insure against many dimensions of risk, was a way to “complete the markets”, to get closer to the theoretical Arrow-Debreu world, enabling investors to transfer resources efficiently across time, space and states of the world.
But this idea relied on the presumption that the world is basically stationary (and substantially linear), that the future is pretty much like the past, that we can extrapolate from relatively small samples, and that there is a single “data generating process” that we can identify and understand.