Eminent economists have told Queen Elizabeth II that the global financial downturn was brought about by a "psychology of denial" among the financial and political elite, a report said Sunday.

In a three-page letter, the experts said "financial wizards" completely failed to "foresee the timing, extent and severity" of the credit crunch, according to The Observer newspaper, which said it had obtained a copy of the letter.

The letter was signed by political historian Peter Hennessy, and Tim Besley, a London School of Economics (LSE) professor and an external member of the Bank of England's monetary policy committee.

It spoke of the "psychology of denial" that gripped the political and financial world in the build-up to the crisis.

The economists said financial experts convinced themselves and the world's politicians that they had found clever ways to spread risks across the markets.

"It is difficult to reall a greater example of wishful thinking combined with hubris," the letter said, adding that it was "principally a failure of the collective imagination of many bright people, both in this country and internationally, to understand the risks to the system as a whole."

During a visit to the LSE in November, Queen Elizabeth asked Professor Luis Garicano about the credit crunch, saying: "Why did nobody notice it?"

A spokeswoman for the monarch's Buckingham Palace official residence would not discuss correspondence but said: "The queen always displays an interest in current issues and is kept abreast of current issues. Obviously the recession is very topical."