Thursday, January 24, 2008

Seven Billion Dollars

I read the Economist every week with pleasure for its interesting analyses, but it isn't often that I get breaking news from it. I did today, though, because the Economist web site was where I first saw the financial scandal that is today's big business headline: the rogue trader at Société Générale who managed to blow $7.2 billion dollars gambling in stock market futures. They didn't call it "gambling." (Since the Economist quoted it in euros, where it's €4.2 billion, I didn't realize the full size until I saw it on Yahoo News. The Yahoo article has more detail.)

This is a 31 year old stock market futures trader, working for
Société Générale, who essentially built his own "play" firm, inside the larger bank, and set out to make a big hit trading stock futures on his own account. He made a big hit, all right. And until last Saturday, nobody at SocGen realized he was doing it. He built a whole structure of faked transactions to cover what he was really doing, using the experience he got a few years ago when he worked in the section of the bank that monitors the trading floors for rogue operations.

Don't they supervise these people?? Does nobody have to sign off on these trades??

It's not as if it weren't a known risk, either. There've been other rogue traders. These guys are total cowboys, and they're convinced that it can't happen to them, and the next thing you know, a bank has gone out of business (see the 1995 affair when a rogue trader in Singapore bankrupted Barings Bank, a 250 year old British firm).

I wonder how long
Société Générale will be around... Second biggest bank in France. Quite a coup to bring it down - if that's the way you want to keep score.

5 comments:

  1. Anonymous9:09 AM

    It is both stunning and unnerving that this can continue to happen, but when one thinks of the savings-and-loan debacle, Enron, and now the sub-prime meltdown, I'm beginning to wonder if rogue is the right term. Bizarre privatization of the game, to be sure, but it is starting to seem to me to go deeper than just rogue, although I admit to being an appalled amateur observer.

    Anonymous David

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  2. Yes, and they all rant and rave about government regulation of business, but incidents like this prove that business is incapable of regulating itself.

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  3. Anonymous6:17 PM

    Off topic and going back to Katherine Harris, who at this point seems to me to be battling mental problems, or at least an extreme form of the Scarlet O'Hara syndrome. I still hold that she was more substantive than the Cuban-American Ronald Reagan that we sent to the Senate.

    Her story as a child of the most famous Florida citrus family, a young lady at an Ivy League school, her conversion to the Republican Party, possibly because of the racist past of Southern Democrats (who, ironically, also became Republicans), then the secretary of state who oversaw massive disenfranchisement of black voters on behalf of her heroes, the Bushes, got a standing ovation from the Republicans in the state legislature for insuring Florida for Bush, was promised a slot as the Republican senate candidate, was essentially betrayed by Rove and the machine, turned more and more to Florida Republican evangelicals, went down in flames in the race against Bill Nelson after the easy open seat was given to Mushmind Martinez, and now seems to be wandering lost and confused in a political and personal wilderness. It would make a hell of a movie if you could get knowledgeable insiders to fill in important details.

    Just wanted to bring you up-to-date. Don't cry for Katherine - she did bring it on herself - but she is still a better person than Martinez, and probably still capable of more independent thought - hell, make that thought, period.

    On a good day, Martinez is a political pile of dreck, a mindless enabler of the worst Republican policies. Harris did their bidding as secretary of state, and is a political lightweight, so I guess you get how little respect I have for Smiling Mel, who ran for senator as "Bush's Cabinet Secretary." I'm not kidding - that's what he put on his campaign mailers.

    Anonymous David

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  4. Politics is just very, very strange.

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  5. Anonymous7:19 PM

    Ain't it just?

    Anonymous David

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