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yeah i agree with you, but there is not much you can do except [1]"self-insure" with proper asset allocation and [2]maintain a solid balance sheet.

like you, i am suspicious of all of these highly leveraged financial institutions employing VaR like it is the holy grail of risk management.

i'm also skeptical that just because the past two economic expansions were much longer than average, that the next one will be too. that could easily turn out to be a case of "fooled by randomness" (taleb's book is excellent btw)

as for "bottom-up" or contagion verses "top-down" or systemic, the point i am trying to make is that contagion is generally amenable to some analysis but systemic is not. i mean, if you are an investor with alger, how could you have analyzed the risk of their office being blown up by fanatical terrorists? some risks just can never be quantified or hedged because of the uncertainty.

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