The devastating financial crisis that began in the summer of 2007 and led to staggering losses for the banking industry, a global economic recession, and an implosion in government finances was caused by two main factors: toxic assets and leverage. But why did banks and other financial institutions take on this "toxic leverage" in the first place? Because an immensely powerful, but little talked about, mathematical model told them to. Known as Value at Risk (VaR), this model inaccurately projected no risk for these clearly worthless assets, insisting that they could be accumulated worry-free. Intoxicated by the promise of short-term profits, the banks listened, and disaster followed. Now, for the first time, The Number That Killed Us reveals the "greatest story never told" about the Great Recession, explaining the key reasons behind this and past market disasters. Providing a comprehensive overview of the development of VaR--a story fraught with mathematical wizardry, intriguing characters, and financial drama--the book reveals how all our lives have been influenced by this mysterious analytical tool.
For the past two decades, VaR has been one of the most influential forces in finance. Acting as a radar for risk that guides the decision-making processes of banks around the world, it can determine whether a banking crisis takes place or not. But with its tendency to sanction dangerous and reckless behavior, VaR can also create chaos out of nothing.
As in his previous book, Lecturing Birds on Flying, author Pablo Triana takes important financial issues off the backburner and brings them to the forefront of controversial contemporary debate. Financial instabilities are revealed, and VaR, the mathematical ruler of the past twenty years, is finally seen for what it really is--flawed and impractical.show more