Introduction to Part III

Abstract

Every financial crisis is a wake-up call for risk managers: Extreme and systemic risks need to be measured better, they say we must pay more attention to the fat tail of a loss distribution, and so on. But after the models have been tuned and ‘improved’, the next crisis happens, and the same calls are heard again. The cycle of systemic crisis followed by ‘better’ risk modeling followed by systemic crisis does not seem to stop – unremitting cycles of ‘innovation’ in measurement, crisis, and revision, pushing metrics into spheres where the results are “at best ambivalent and at worst dysfunctional” (Power, 2004a: 771).