From Tim Price – London Investment Alert (Great Britain) –
(For the uninitiated, and just to extinguish any remaining humour that might reside in the already politically incorrect headline above, VAR is one of those technical measures of risk that investment banks tend to use collectively until they all stop working at exactly the same time, just when they’re most needed. It stands for “value at risk” and is an estimate of how much a portfolio might be expected to lose, under “normal” market conditions, during a set time period. Like so many other technical measures of risk, VAR has been widely discredited by the post-2007 market environment. But I dare say Deutsche Bank’s traders still use it.)
True to form, my going on a late summer holiday managed to trigger another acceleration in the ongoing financial crisis. (Previous late summer holidays coincided with the run on Northern Rock, the Lehman Brothers bankruptcy, and various chaotic shenanigans in the US legislature.)
They say: if you’re going to panic, panic early. Hedge funds are not exactly known for their social courage, and some of the hedge funds that used Deutsche Bank as their prime broker decided last week that panicking early was the best defence. Given the billions of dollars that got frozen when Lehman Brothers’ prime brokerage facility went permanently offline in September 2008, they are probably doing the right thing.