Value at Risk?

What a great name for a quantity! I prefer "stakes on the table", or "contribution to the pot". But, anyway, "Risk Mismanagement" by Joe Nocera in the Times on Sunday was a great contribution to the level of understanding which your normally well-educated person might gain of the crisis and what's behind it.

Clearly the understanding between the Risk Management function of the financial institutions and the business management went haywire. Whether it was bad communication or just willing suspension of belief (not to mention of disbelief) may have differed by the institution. What was needed was the ability to walk away from the conventional wisdom, and too few mustered it.

I thought risk management--in the traditional sense of credit risk management, to which Nocera refers briefly--got off way too easy in his assessment, though. The mortgage lenders never showed much serious interest in understanding the risk in their portfolios due to the possibility of falling real estate values. This, not the buildup of toxic assets, was the unexpected occurrence, and the balance sheet disaster just the snowballing result of it.

Great quotes from my good friend Aaron Brown, and I loved the writer's attempts to reason with Nassim Nicholas Taleb, or Nicholas the Terrible (NT for short).