What's wrong with "Value at Risk" as a risk measure?

A big part of the current financial crisis is a failure of Risk Management. How could professional bankers fail at risk management? That's been the essence of successful banking since the earliest history of banking!

If you have been trained in modern finance theory, then you know that financial experts use some highly sophisticated mathematical techniques to measure risk. Banks have traditionally been institutions in which expert risk managers look at investments, measure the possible return, then evaluate how much risk there is that the return will not cover the cost of the investment and provide a profit.

Financial Quants have been leading the charge in measuring risk since some academics developed the theory of Value at Risk since the early 1990's. Joe Nacera at the New York Times has an excellent article on what the weaknesses of Value at Risk are and how the various Wall Street banks, regulatory agencies, and investors have misused Value at Risk and how that has contributed to the current Wall Street crisis.

Hilzoy discusses Value at Risk and links to additional criticisms of the concept by some bloggers.