The level of financial impact from that equation is enormous. It's not just LTCM. Every bank in the world now uses derivatives to hedge risk. Every mortgage is dependent on people being able to offload the risk.
Saying Black-Scholes is imperfect is like saying Newtonian mechanics doesn't account for Relativity. Black-Scholes was the formal starting point for pricing derivatives, or the offloading of risk. Everyone has advanced well beyond it. Blowups not withstanding, without Black-Scholes our lives would be very different.
I would argue that it's generally a massive failure, and that history will view these models as extremely naive when it comes to judging risk.
Comparing it to Newtonian mechanics is unfair. Newtonian mechanics actually work, just not for everything. To have a risk model that doesn't work for risk is something completely different.
There are lots of reasons why Black-Sholes doesn't work. Also lots of reasons why incentive problems cause people to misuse financial models. But that doesn't change the reality that our lives are dramatically changed as a result of them.
Saying Black-Scholes is imperfect is like saying Newtonian mechanics doesn't account for Relativity. Black-Scholes was the formal starting point for pricing derivatives, or the offloading of risk. Everyone has advanced well beyond it. Blowups not withstanding, without Black-Scholes our lives would be very different.