Edit: No, child posts, you cannot make the leap that trend following algos are the same thing as modeling MBS risk (which isn't an algo...).
One of the major failing of modern statistics instruction is 6+ sigma events don't look like 1-5 sigma events. Case in point global death totals per second probably fit a very well defined curve, but Hiroshima and Nagasaki where well outside that curve.
The flash crash was the result of bad algorithms, the tools acting on their own without significant human guidance or erroneous input. But that was a relatively minor event that temporarily affected professional market makers. Something like that could happen again, with a much larger impact. But the 2008 crash was not it, and wasn't related or even similar.
It is difficult to predict 6+ sigma events, but humans as a whole are no better at it than algorithms are. There were plenty of people who saw things that others didn't and made big short bets against the housing market. The problem there is that everyone else didn't listen to them. Eventually we can improve statistics to catch more outliers. Good luck improving human nature to get people to listen to predictions that go against the herd.
And if someone really wants to place blame, it's pretty tough to ignore the regulatory and interest rate changes that created the environment that allowed it all to happen. But again, like you said, good luck improving human nature.
Banks have shown themselves to be pretty irresponsible with (practically) free credit though. That's a mistake we shouldn't repeat again.
Often bad nails are the direct cause of a collapse. As in someone used 3 inch nails when they should have used 6 inch nails, or they were not rust resistant etc.
In the end Root cause analysis is about looking past the direct cause to keep from repeating the same mistakes you need to look at both the direct case and dig further. In this case you look at algorithms misclassifying a lot of bad debt and then pealing back the layers. In the nails example it might be someone incompetent designed a foot bridge or someone tried to skim money by using 3 vs 6 inch nails or whatever.
In the bridge example replacing the crooked supplier is all well and good, but you also need to fix all the other bridges made with 3 inch nails.
PS: Where to place blame and the direct cause are far from the same thing.
Why wouldn't trend following be the winning strategy when the market stayed on a steady climb? Anyone who hasn't continued with that strategy, attempting to call a top to this current market, has probably taken a beating many times over.
If anything, Algos helped to correct the market more quickly as those who chose poorly were washed away with greater speed.