ROGUE TRADER?

JANUARY 24th 2008
Nick Leeson, commenting on the 3.7 billion pounds lost by a junior trader at Society Generale who had administrator privileges on the computers handling the buying and selling of stock and currency futures, said this latest blooper happened for the same reason as his did. The fear of failure and the desire for success drove the guy on.

Most properly educated people learned in their youth a simple truth in life: "You win some, you lose some". No trader can win every time, they shouid be handling investments with imagination but not gambling with huge sums on a single outcome which can by definition never be guaranteed. A properly educated man or woman is one who has read Kipling's "IF" and understood it properly, not as superficial instructions on how to win a race run on terms set by people who do not.

These traders are not rogues. They are people who should never have been given the job with the privileges they had in the first place. But until their employers learn to fly themselves they will have to employ pilots of whose work they understand nothing at all, not even enough to monitor from a distance or set the regulations and limits that should apply.

JAN 25th -  As Roger Federer remarked after losing to Djokovic: "I've created a monster, that I need to win every tournament — still the semifinals isn't bad."

Quite. For every winner there has to be a loser, usually a great many. But a win-win, non-zero-sum game has been achieved for periods and places in history from time to time and the achievements passed on, as well as the achievements gained through tragedy, failure, conflict and triumph. We are going global now. That's a new game level which all the past should have prepared us for as long as we haven't lost the notes and have the means and will to share them.


JANUARY 26th
The Societe Generale 'rogue trader' is now being qiuestioned by the police. These are the questions I would like answered:

1. How much money was he placing at risk at the most?
2. Was he trading on behalf of the Bank or himself?
3. If on behalf of the bank, supposing he had been successful, would he have made as much or more as he is supposed now to have lost?
4. If he had been successful, how would he have explained the profit he had made for the bank to the bank's managers?
5. If he had been successful, to whom at the bank would he have reported his profitable trading?
6. Who gave him the access he had to both the system and the trading operations?

Not to put too fine a point on it, I do not yet accept the innocence of others at Societe Generale, including some at very senior positions.

JANUARY 27th
Now we know the police have asked my first question. The amount of the bank's credit the trader was using was ten times the amount lost by the books being closed. Of course I am not suggesting he would have lost the lot, but he could have if he had continued to try not to lose any at all. Now we need to know who was alerted to the position, by whom or by what observation were they alerted that was not evident earlier. How did they then close the books and accept the loss etc. etc. The bank are saying he falsified sales to balance the instruments that showed a loss. When they dicovered the falsified sales they took three days to wind down the real exposure before revealing what happened. Fair enough. I can see how this happened, However the other questions above need answers.

JANUARY 28th
Now we learn that Jerome Kerviel was not the only trader at Societe General who had administrator provileges sufficient to play games with the software. Good grief Charlie Brown, will the top people in these banks never learn? You can either turn a blind eye, hoping this will keep your young computer turks happy and that they will make you a profit which can then be declared as legitimate, risking total catastrophe if they go out of control, or you can set up the orthodox procedure whereby nobody who can possibly manipulate the system is at the same time a trader, and that never the twain shall meet, and all access names and passwords are changed regularly in a procedure supervised by top managers only. In this case top management can either claim to be innocent but incompetent, or guilty.

Later....
It seems the investigating judges agree with me

PARIS (AFP) - A trader accused of losing more than seven billion dollars at Societe Generale escaped fraud charges Monday as the French banking giant's share price plunged amid new allegations of insider trading.

Jerome Kerviel was freed on bail after being placed under formal investigation for "breach of trust", "falsifying and using falsified documents," and "breaching IT procedures," said his lawyer Elisabeth Meyer.

Judges rejected a bid to charge Kerviel, accused by the French banking giant of losing 4.9 billion euros (7.15 billion dollars), with the more serious crimes of "gross breach of trust" and "attempted fraud."

"It's a great victory," Meyer said, "but it's only justice being done."

So that implies, since he is not charged with intended fraud, that if the market had gone the way he bet and he had made £3 billion profit, he could have decalared it to his bosses and been praised! Justice being done means not just letting Kerviel off on the fraud charge, it means charging his coniving management with it for real.

JAN 29th:
On further reflection, Kerviel is a crook and should be punished along with his bosses, who he was deceiving.
The company, employees and government are rallying round the management. Well they would, wouldn't they. They don't want Soc Gen taken over and there is work to be done. I agree this is no time to sack everybody. But in due course that is just what needs to be done. They were running a can of worms and they should all go. There are many other worm-cans around, so let's not get too sanctimonious or hasty.
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