• New York Times Magazine, Marketwatch, Tuesday, January 13, 2009 11 AM

I've written before that one should never pass up an opportunity to read a Joe Nocera piece; I've finally caught up with his cover story in the magazine dated Jan. 4. "Risk MisManagment" is about the complex mathematical models that Wall Street uses to assess risk. The most prominent is a framework called VaR -- for Value at Risk -- that was developed at JP Morgan over a period of about seven years.

Many clients wanted to purchase the system but Morgan decided to give it away instead. It formed a small group, RiskMetrics, to "teach the concept to anyone who wanted to learn it while also posting it on the Internet so that other risk experts could make suggestions to improve it," Nocera writes.

He then quotes Till Guldimann, the JP Morgan banker who ran the team that devised VaR: "Many wondered what the bank was trying to accomplish by giving away 'proprietary' methodologies and lots of data, but not selling any products or services. It popularized a methodology and made it a market standard, and it enhanced the image of JP Morgan."

Would that it hadn't become a market "standard," one concludes upon concluding Nocera's piece. But Morgan itself did "manage to avoid some of the problems that brought rivals to their knees last year," as Alistair Barr reports in MarketWatch. 

Read the whole story at New York Times Magazine, Marketwatch »