The problem was not that the models were wrong, it was that what they were trying to accomplish was unmodelable. Nassim Nicholas-Taleb's The Black Swan explains this far better than I can.

My reading of Taleb's book was the opposite: he says quite explicitly that the finance models behind the crash were wrong, being based on Gaussian distributions, which did not fit the phenomena being modelled. He contrasts the Gaussian with power-law distributions, although I admit I don't know if he has done any mathematical modelling of the finance markets using those.