NYT on risk

"It’s almost as if the higher the rating of a financial institution, the more likely it was to contribute to financial catastrophe." : op-ed in today's NYT from Michael Lewis.

Well duh, actually. He is trying to make an argument that since firms with high ratings went bust, the ratings agencies must have been bad. A catastrophe is pretty much defined as "when even large safe firms go bust." Given that we are in a catastrophe, it is not at all surprising that the large safe firms are the contributors. This is exactly as expected by me and everyone else that worked at Moody's.

Also in today's magazine, an article that seems to claim Value at Risk is the root of all evil because it doesn't tell you how bad bad is. Again, Duh. There are other metrics that tell you how bad bad is, but generally people don't care because the firm goes out of business as soon as very bad happens. 'Very, very bad' is not something firms try to avoid any more than they do 'very bad.' That's just the nature of bankruptcy law (true for both corporations and individuals). And 'very bad' is known to be possible and to happen x% of the time. That's the risk we live with. It is not possible to protect against all risks. If you're building a bridge, you can engineer vs. a 7.0 earthquake, or for a lot more money, an 8.0 earthquake, and you just decide what risk you're willing to live with. But nobody suggests the bridge should withstand a meteor strike. Bad things happen to even the most protected.