This precise of The Quants by Scott Patterson describes the role of financial econometrics and its practitioners in the near-collapse of the global financial system. It is a distressingly repetitive story. The 1997 Asian Financial Crisis can be traced to the activities of such funds as LTCM (Long Term Capital Management) that used similar techniques.
The problem is not the use of math to trade financial instruments, although one could question whether a prudent person should invest in securities for which there was little understanding.
The real problem is the lack of transparency and the lack of appreciation by bank CEOs for the risks. As long as traders made money, CEOs cared less what they did or how they did it. Apparently, there was such a thing as a free lunch.
However, any reform proposed by the Administration should not try to curb the use of such tools - it is pointless. Reform must be aimed at improving governance by increasing transparency and holding accountable the CEOs and Boards of Directors of banks for basic risk management practices.
Perhaps criminalizing the lack of accountability would be a good way to start.