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

In the 1990s regulators and policy makers worried about the risk that financial institutions were carrying. Once the walls between investment and commercial banking came down with the repeal of Glass-Steagall, both trading and lending (and everything in between) were now housed under one roof with institutions freely accessing funds from one part of the institution to the other. But Glass-Steagall had just been repealed so how to fix the risk problem? Where there is a problem, there can usually be found an entrepreneur to give the market the product they want. And thus VAR was born and quickly embraced by financial institutions and regulators as the answer to managing risk. As long as an institutions VAR number was in an acceptable range, it could do what it wanted. Weren't we all safer now? As it turns out, the answer was No. The metric not only hid the iceberg lurking beneath the surface but allowed banks to pile on more and greater risk. Each bubble, mania, and crash that emerged in the intervening years became more pronounced, thanks to VAR.

In The Number That Killed Us, derivatives expert Pablo Triana takes readers through the development of VAR and shows how it was not only not a tool for accurately measuring risk but allowed banks to take on even greater risks. Embraced worldwide, VAR is just starting to be examined as problematic, led by a coterie of experts such as Nassim Taleb. VAR is a problem. Triana looks at it analytically and uncovers why and how it makes our financial world a more dangerous place.