Roger Ibbotson, Benoit Mandelbrot, and George Cooper

We value your feedback. Send comments, questions, and criticism to advisorquest@morningstar.com.

To investors who lost mightily, the stock market crash of 2008 was a shock to the system. To Drs. Roger Ibbotson, Benoit Mandelbrot, and George Cooper, the decline was just the latest in a long string of the market's fits and starts. And if investors are finally awakening to the risks they incur when they invest in stocks, these three distinguished academics long ago observed that the market is a lot riskier than it may seem. Ibbotson is the founder of Ibbotson Associates, which is a wholly owned subsidiary of Morningstar, and professor of finance at the Yale School of Management. He is chairman and CIO of Zebra Capital Management, a manager of quantitative equity hedge funds.

Mandelbrot, the inventor of fractal geometry, is Sterling Professor Emeritus of Mathematical Science at Yale and co-author, with R.L. Hudson, of The (Mis)behavior of Markets (Basic Books, 2004).

Cooper, principal of Alignment Investors, is the author of The Origin of Financial Crises (Vantage Books, 2008), which The Economist calls "a must-read on the origins of the crisis."

From Chicago, we invited them to participate in a conversation, via conference call, about the crisis, economy, and the long-term ramifications for investors. On Dec. 17, Ibbotson called from New Haven, Conn., Cooper from London, and Mandelbrot from Boston. The discussion has been edited for clarity and length.

Paul Kaplan: The Fed took a dramatic step yesterday in lowering its funds rate to close to zero. What does that say about the current state of our financial system? How'd we get here?

Roger Ibbotson: Obviously, it's in really bad shape right now. I don't think the Fed funds rate has ever been that low. We are trying to regenerate the economy and save the financial system.

As I look back, it's looking more and more like the 1930s in terms of the financial markets. We haven't seen these large daily price movements in the market since the Great Depression. We had some really bad results in the stock market in the 1970s; we had the crash of 1987; and we were down 45% in 2000-2002.