by Debs is Dead
lifted from a comment
The news that a 33 year old junior shit kicker in France’s Societe
Generale Bank ‘defrauded that institution for 5 billion euros’ strikes
as one of these stories which instantly splash around the world
overwhelming every other piece of news, yet somehow too much of this
tale doesn’t add up.
How did he do it? Right towards the end of a rather obscure Reuters article we learn:
Five billion euros of losses is enormous. It represents a position
of several dozens of billions of euros, perhaps 30 or 40 billion. How
can one person all by themselves do that?
Indeed. How can one "junior trader" "certainly not a star" do this?
This is being compared to the Englishman Nick Leeson’s ‘one point something billion Euro’ fraud on Barings Bank that ‘broke’ that bank but in the case of Leeson, senior bank executives knew
he was their biggest earner. He had kept the bank ahead of the game in
a year or more of tough times. When Leeson’s luck finally ran out, he
had been betting on Japan stock futures and their run finally
foundered, the Barings execs ran a million miles from Leeson and had
him thrown into jail. Typical capitalist perfidy. But SocGen exec’s
claim to have known nothing about young Jerome Kerviel’s antics has an
even fishier smell to it than the Barings bastards.
To have lost as much as he did he would have had to take a position
of tens of billions of Euros on one of the most basic derivatives in an
extremely complex market, futures contracts on European equity indices.
No one noticed for over a year?
As one amerikan derivatives trader said:
Everyone is asking themselves .. how just one trader, all alone in
the corner, could have beaten all those whiz kids who throng around in
Societe Generale, …
Of course SocGen has the answer to that, well an excuse they want us
to believe anyhow. That is that Kerviel had been working in the back
office for several years before he won the front of house gig and
during his time down in the engine room he had come to thoroughly
understand all SocGen’s security measures which he then bypassed.
Simple as that. Heh! well isn’t it a bit unusual to move someone with
that knowledge out the front? I mean to say if that were de rigeur in the banking world to have traders who know the security well enough to subvert it, why bother to have controls at all?
Reuters say it nicer:
A senior bank board member told Reuters
that Kerviel "was not a star", but Bank of France Governor Christian
Noyer told reporters that the rogue trader was a "genius of fraud".
Play that again, Sam.
Just by way of a coincidence at the same time that SocGen announced
their $7Billion loss, as an afterthought they slipped in that they were
down the tubes some 2.05 billion euros with a loss related to the
credit crunch, ie. that old sub-prime scam.
Now even though it doesn’t normally have a lot of friends and allies
in the bitchy world of international wheeler dealing and has been
regarded as an ideal takeover target for some time, the banking world
has really rallied around SocGen on this. Everyone is sticking
together, praising CEO Daniel Bouton who made some sort of token offer
to resign which was "of course" refused.
They are sticking to the script because the news of this came less
than a day after everyone was making pretend that Bush’s lame parish
pump prime and Bernacke’s interest rate cut had engineered a
‘turnaround’ on the market.
The cry had been; "There is nothing to see here folks, its all over,
y’all can go on home". Then during a pause in the chatter, SocGen
dropped a big steaming log on the rug. As fast off as a bride’s teddy,
everyone went for the most unlikely finance yarn since the South Seas
Bubble in their rush to clean the carpet.
The ‘rally’ story must be sold to the rubes. The new sceptics in
Hong Kong, the poor buggers who have spent the last few days trying to
explain the exigencies of a bear market to a mob of annoyed and anxious
Chinamen, didn’t buy the story and will have to be dragged into line.
Although a wise-ass in amerika did put the cat right into pigeon
territory when he wondered whether the bank’s maneuvers had contributed
to Monday’s market fall, and to the U.S. Federal Reserve’s decision to
cut interest rates.
CNBC came to the rescue on that one and reported a Fed source saying
the central bank had not been aware of SocGen’s problems ahead of the
emergency 75 basis point cut.
But that is getting closer to what probably happened, after all according to Reuters again:
One
banking insider estimated that the losses were worth "just" one billion
euros at the weekend, but these rapidly snowballed when SocGen moved to
purge their books on Monday and Tuesday as European stock markets
plunged.
Yeah right the bank finds itself long on European equities and just
keeps on selling, right into the biggest fall in a couple of decades? I
mean we don’t know what the exact positions were but apart from the
fact that some recovery from Monday’s low would likely eventuate didn’t
it occur to the French Masters of the Universe that selling all those
positions in one hit was going to push the market further down?
Disingenuous Bouton turned that around when he told a news conference
These losses could have been gains if the market had climbed on Monday, Tuesday and Wednesday
Hell maybe the market wouldn’t have fallen so far if you hadn’t
unloaded tens of billions of dollars worth of long positions Dan.
So why? Well the answer is in the question really. Undoubtedly the
fool Kerviel did take some shortcuts to try and force his luck on the
dealing desk. In doing so he provided slugs like Daniel Bouton an
excellent get out of jail free card if their over-confidence ever
caught up with them. Maybe they only found out about Kerviel’s
stupidity recently, maybe they have been saving it up for a rainy day
but one thing is for sure, virtually every other bank which has lost
billions on the sub-prime stupidity has had their CEO fall on his
sword. Bouton didn’t need to because at the same time he announced a
loss of a couple billion in the sub prime saga he let slip about
Kerviel’s $7 billion fuck up. A fuck up that was only $1 billion before
SocGen liquidated their position on Monday.
Kerviel is out there somewhere, he won’t be dragged before a
magistrate until the media have the public screaming for his head. That
should prevent any ‘underdog’ blow back that could happen if he were
dragged in front of a beak right now and had a laywer ‘straightening a
few facts out’ to the worlds’ cameras.
Bouton is fine, the world is fine, apart from the poor fuckers whose
pension fund and life insurance is in the SocGen, and of course
France’s taxpayers all of whom have to ante up another $5 billion
euros. That is straight after being told there is no dividend this year.
Say what you like about centralized demand economies, but the
Russians would have put a bullet to the brain pan of everyone involved;
from Politburo member Bouton, on down.