Eugene Fama, known as the father of modern finance, said that the financial markets were "demonstrably efficient" during the financial crisis in 2008 and 2009. Fama, who is credited with developing the efficient markets hypothesis, also told about 550 attendees at the Investment Management Consultants conference in Chicago that Modern Portfolio Theory (MPT) also worked during the crisis.

Markets are not "perfectly efficient," Fama conceded, but it's a "good model" of the world. "Diversification is your buddy," he added, referring to MPT. It was as true "in 2008 as it was in 1953," when Harry Markowitz, a graduate student at the University of Chicago wrote his thesis about MPT that would one day earn him a Nobel Prize. Fama himself is the Robert McCormick Distinguished Service Professor of Finance at the University of Chicago Booth School of Business.

When conditions in the economy and the financial markets reach extremes, markets tend to move together, Fama said. Undiversified portfolios "become even riskier" in such periods.

At the onset of recessions, it's natural all or most markets experience price devaluations. "That's [the market's] job," Fama said. "It did it very well."

One obvious question is what was the casuality factor? Fama acknowledged this was a tricky issue. "You can't empirically tell whether" the economy caused the markets to tumble or whether the markets dragged the economy down with it. Macroeconomists, he added, don't have a very good record at predicting recessions.

Fama singled out government policies dating back to the early 1990s encouraging home ownership as a big factor in the Great Recession. "Income inequality was already becoming a problem" and policymakers wanted more Americans to have a stake in the economy, he said, adding that home ownership seemed to be the perfect vehicle for this.