The Number That Killed Us. A Story of Modern Banking, Flawed Mathematics, and a Big Financial Crisis

  • ID: 2102005
  • Book
  • Region: United States
  • 264 Pages
  • John Wiley and Sons Ltd
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An unflinching look at the risk measurement tool that brought about the Great Recession

It′s time to learn the truth about the financial crisis.

In The Number That Killed Us, risk management and derivatives guru Pablo Triana presents a shocking look at Value at Risk (VaR), the mathematical model that encouraged banks to take on toxic assets they should never have touched and that ultimately brought the international financial system to its knees. Examining the myriad problems that went overlooked during the two decades when VaR was the king of financial management including using the past to predict the future and depending on an algorithm instead of common sense the book discusses topics such as: the history of VaR, its role in Washington, the role of regulators and academics in a malfunctioning financial world, how bonus–hungry traders used VaR as an alibi to take reckless bets, and much more.

Essential reading for individual and professional investors, market professionals, regulators, policymakers, and anyone who wants to really understand where all the money went, The Number That Killed Us drags the risk measurement tool that has repeatedly and severely hurt the financial world into the spotlight.

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Introduction When a Tie Is More Than Just a Tie ix

April 28, 2004 Steve Benardete Gets His Wish; The World Suffers xxvii

Chapter 1 The Greatest Story Never Told 1

Chapter 2 Origins 49

Chapter 3 They Tried to Save Us 71

Chapter 4 Regulatory Embracement 89

Chapter 5 Abetting the CDO Party 113

Chapter 6 VaR Goes to Washington 161

Chapter 7 The Common Sense That Should Rule the World 181

Finale The Perils of Making the Simple Too Complex 213

Guest Contributions 223

Why Was VaR Embraced?

A Q&A with Nassim Taleb 223

A Pioneer Wall Street Rocket Scientist s View An Essay by Aaron Brown 226

Notes 245

Acknowledgments 251

About the Author 253

Index 255

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Pablo Triana, whose previous book was an elliptical trip around the world of risk entitled Lecturing Birds on Flying, knows whereof he speaks. Indeed, he was one of the quants entrusted with the task of gaming VaR Triana s argument is that it wasn t subprime US mortgages or excessive remuneration or even financial engineering as such that brought the banking system to its knees. It was the hubris of quants who believed that market risk could be encapsulated in a single number, the naivety of regulators who, he implies, did not have the little grey cells to argue with them, and the greed of banker bosses who quickly cottoned on that this objective measure of risk was in fact highly subjective and infinitely manipulable I hope [the book] prompts a response from VaR s remaining defenders. Financial World

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