Risky Business

Said goodbye to Tilly Hatt, having arranged a flight for her from Toronto to Denver, from where she could return to Washington. The broken arm could then be from a skiing accident at Vail, rather than an unwanted outcome from that craziness in Saudi Arabia. The escapade did not escape entirely unnoticed -- Al Jazeera featured a photograph of the head of a woman that looked remarkably like Andrea Dworkin, along with furious comments by the Saudi Religious Police. Such is life in the Ninth Century.

At this point Warren Buffett called. He was in Toronto on business, and wanted a meeting. He suggested one or two places, but too often celebrities dined there, and this meant the paparazzi as well, something not conducive to my health. I suggested dinner at a somewhat out of the way place, known by those who appreciate good food, but not known otherwise -- Noce at Queen and Walnut.

I had chosen to wear one of my son's hemp outfits -- a beige sheath. The only bow to current fashion was a cool leather belt by Versace, which complemented things nicely.

"You look smashing" he said, as he ushered me into my seat. "Dolce and Gabbana?"

"No, Sebastian's of New York." and over Manhattans I related the nonsense of the hemp charge, and the subsequent outcome.

Buffett laughed. "I must have a word with Bloomberg about this."

"You will do no such thing," I replied. "Michael wants that episode kept very quiet. But you might have your researchers do some due diligence on hemp's market potential. My son is doing very well, and the thing is politically correct as hell. Ah, here's the minestrone."

We attended to our soup, but shortly after, Buffett asked, "How did you escape?"

For a minute I thought he was referring to the Sudan and old Al Bashir, but he couldn't possibly have known about that little adventure. "Escape from what?" I asked.

"This financial fiasco. Sub-primes. Madoff. Collateralized debt options. The whole shooting match. Dropped a significant amount myself. You, my sources tell me , did not lose a penny."

"First things first. Take Bernie Madoff and his Ponzi scheme. I avoided that like the plague. Why on earth would you invest in a fund run by a man with the surname Madoff? As to the other issues, I simply read the VaR correctly."

"You know about VaR?"

"Value at Risk. Really, Warren." I shot him a withering glance.

"Sorry. Of course you do. Ah, but here's our wine. I must say, I didn't expect a cellar this good. Lafitte Rothschild indeed."

"You'd be surprised what you can find in this town." I tried a sip. Magnificent. "Now as to VaR--"

"I'm all ears," he said. "Hell, Nobel prizes were awarded for that algorithm. But it didn't alert the risk factors soon enough."

"It was soon enough for Goldman Sachs, after the Long Term Capital Management screw-up. That's when they began to draw in their horns. So did I. But they didn't go far enough, nor did anyone else. Because --"

"Because?" He was giving me total attention now.

"Because the time frame it measured was too short. VaR generally relied on a two year data history. This worked for a while, and everyone made a lot of money. It was 98% accurate -- AIG thought 99% -- and that was considered adequate risk. And it is, under those terms. But the time span was roughly 1997 to the present. If, on the other hand, you begin in 1900, then the risk factor doesn't begin to whimper at a 1% or 5% level, it begins to shriek at about a 25% level. In other words, time to jump ship, realizing that you've hit those dreaded initials, T.B.D."

"To be determined?"

"No. THERE BE DRAGONS. Now let's talk about sugar beets."