Gotham Diary:
Value At Risk
22 December 2011

The tree was supple and easy to decorate. It was also full without being expansive. Owing to attrition, we haven’t got many ornaments this year. (Kathleen’s priceless old ones are never used when the tree stands in the foyer. I may yet persuade her to risk one or two.) I am halfways through the Christmas-card list, and thanks to several sheets of self-stick $1 stamps, I can mail our calendar packages without further trips to the Post Office. Only two things remain: planning Christmas Eve dinner and buying some presents for Will. I hope to have knocked both items off my list before the end of the day.


Nicholas Dunbar’s The Devils Derivatives is not an easy book to read. It’s fluent, so far as narrative goes, but it is not shy of difficult concepts. And I still haven’t figured out quite what a “mattress” is. But a clearer-than-ever picture is developing in my mind; I can see the steps that the would-be wizards of Wall Street (working in Europe, for the most part) took to diminish the appearance of risk in order to “hoover up nickels,” as Robert Merton put it. (Or was it Myron Scholes?) The governing idea seems to have been the erection of trading platforms so immense — capable of supporting so many bets — that moderately dodgy investment vehicles would take on the rosy blush of investment grade. At some point, one or both of two things happened: greed made the traders (and the salesmen) disoriented — I keep thinking that they got something like the bends in their pursuit of higher bonuses — and the trading platforms coalesced into one hypercolossal platform, with all correlations set to 1. I’m writing this off the top of my head as an aide-memoire: I hope, re-reading it in the near future, to be able to spot every error in this paragraph.


What if someone had told me, when I was a little boy, always on the lookout for presents (was I ever), that I’d have much more fun when I grew up and became a grandfather and got to buy them instead? What would I have made of that? I’d have thought that it was the usual adult palaver, to which almost all wisdom seemed reducible, the most concrete version of which was “a penny saved is a penny earned,” which, by the way, is utter nonsese, since, unless it was stolen, the penny has presumably been earned already. No one did say, it however — no one ever thought to tell me how much fun I’d have when I got to be a grandfather, and could visit a toystore, such as Kidding Around, and buy more or less everything on my list, and then some.

I did take heart, though, from Robert Louis Stevenson’s “Looking Forward.”

When I am grown to man’s estate
I shall be very proud and great,
And tell the other girls and boys
Not to meddle with my toys.

Oh, exactly. That, I got. And so now I’ve got a lot of toys to hand on to Will.