POW - Prisoners of Wall Street

Hanging out with Hiroko, I haven't seen her since moving to Tokyo, she is extremely busy with her project, valleyball practice, grandson and the dog, nanachang.
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I am reading this very intersting book by Satyajit Das, Traders, Gunes & Money. Das's scepticism humourous is hysterical, I wish I could write like he does, full of wisdom and prickingly painful humour. I am moving so slowly with his book, because I sincerly want to memorize every single sentence in the book.

There is one chapter about risk management, mathematical finance lends credibility and false precision to the dismal reality of risk management. Take VaR (Value at Risk) for example, all risk management officers are trying to give the bank's senior management one single number to quantify how risky our portfolio is. Some genius came up with the idea of VaR. VaR describes the maximum loss that could occor 1 out of 100 days of trading. However, the model is built on top assumption that all risk factors (interest rates with different tenors, FX rates, etc) are normally distributed. Besides, you need to have at least a couple of thousands of sample space to see the normal distribution. Something smells fishy already. Instead of using Monte Carlo, historical VaR is better? Naaaaaaah. We are making the assmption that the future market movement is somewhat similar to the past. Yeah, tsumani comes every 10 years, and terroist attacks happen periodically.

We still see banks register large loss with liquidity melt down, operational mistake or makret crashes regularly. What are the risk management doing? The conclusion is that risk managment is the insurance that the bank's senior management buy to protect their asses when things go sour, they can have something to blame or someone to fire. In addition, consultants and vendors were the main cheer leaders for risk management guideline, I wouldn't be suprised if there is a group of lobbyists funded by them, trying to push through another new regulation after another market crisis settles.