By Pablo Triana
ISBN-10: 0470529733
ISBN-13: 9780470529737
ISBN-10: 1118171535
ISBN-13: 9781118171530
ISBN-10: 1118171543
ISBN-13: 9781118171547
ISBN-10: 1118171551
ISBN-13: 9781118171554
ISBN-10: 1119198828
ISBN-13: 9781119198826
"A serious examine the danger dimension device that has many times, and critically, harm the monetary international. The credits predicament that erupted in 2007 is in no way the one surprise to have shaken the monetary markets during the years. yet those industry tribulations appear to wreak extra havoc than ever earlier than. writer Pablo Triana, in addition to different specialists within the monetary box, imagine particular quantity is to blame. �Read more...
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Additional resources for The number that killed us : a story of modern banking, flawed mathematics, and a big financial crisis
Example text
In essence, the most influential financial firms out there bet the house on the likelihood that precariously underearning mortgage borrowers would honor their insurmountable liabilities. indd 1 10/21/11 6:41:26 PM 2 t h e n u mb e r t h at k i l l e d u s the firm’s entire equity capital base) inevitably sank the punters, making some of them disappear, forcing others into mercy sales, and sending all into the comforting arms of a public bailout. As these global behemoths floundered, so did the financial system and thus the economy at large.
That is why banks often prefer a lot of leverage rather than just a little bit of it. It is obviously better to make 50 percent positive returns on capital than 10 percent positive returns on capital. Traders and their bosses get bigger bonuses when they are generating 50 percent returns on capital than when they are generating 10 percent, so building up massive leverage is a big temptation for them. VaR can be wonderful for those purposes, given how easy it is for the model to churn out very low capital requirements.
S o why did Wall Street lobby so stringently for VaR? Really, why the obviously intense infatuation? Was it true love or interested love? Let’s be benevolent first. ” The old ways may simply have looked exceedingly rusty in the brave new world of super-size bets and complex derivatives. It was urgent that risks be measured more accurately. A math infusion was in order, according to this argument. indd xxxvi 10/21/11 7:19:50 PM April 28, 2004 xxxvii was the case under the standard approach.
The number that killed us : a story of modern banking, flawed mathematics, and a big financial crisis by Pablo Triana
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