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With the benefit of hindsight and first-hand experience it was determined that VaR essentially creates a self-reinforcing feedback loop that leads to ever increasing risk levels until the inevitable catastrophic failure occurs because investment, market and financial risk cannot be eliminated, only transferred. Further the promise to pay a derivative is only as good as the company that sold it, as we found out in the 2008-2009 financial crisis, problems can and did arise especially when trust breaks down. One of the reasons that the 2008-2009 crisis spiraled out of control was because markets behave in a fractal manner as opposed to the statistically based approach used with modern portfolio management. The paradox of risk writ large.


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