Rogue Trader – Societe General’s Jerome Kerviel
In France, a 31-year old former back office worker-turned-trader and computer geek, manipulated the market to the loss of $7.1 Billion US dollars, the largest ever for a single trader.
His annualized salary: $145,000 US dollars + benefits. ($100,000 bonus.)
His ability to hide these losses, evidently for 2 years, is remarkable. That the BBC reported this morning he was “mediocre and not a rising star” is contradicted if you realize how hard it would be to swing the trades consistently enough to lose 7 billion dollars, hide it from the “supposed stars” of the trading section, and, is currently at-large.
His positions were liquidated on Monday by the bank, during a holiday and low-volume trading, resulting in the huge losses and the halt of trading on Société Générale's shares. And possibly, the movement by the Fed, the volatility by the U.S. Markets on Tuesday and Wednesday and the further fear about financial institutions were triggered by this one-man trading legend.
To Quote from the article:
The bank took the first three days of this week desperately attempting to unwind the positions in what proved to be hostile conditions as markets plunged. If they had gone up, the positions might have made gains for the bank, Mr Bouton said. As it was, they turned into "gigantic and colossal" losses.
Analysts said that SocGen's unwinding of the massive rogue positions on Monday would have contributed to the violent slump in share prices and may, therefore, have played a part in the surprise decision by the US Federal Reserve to cut American interest rates. "There's a very strong link between the equity futures market and the cash equities market," one equity strategist at a
big bank said. "It may have influenced Fed thinking." The trader managed to conceal his positions through his knowledge of the administrative side of the bank, the "middle office", where he worked for three years until 2005.
What it shows: an underestimation and major stupidity by a large bank. The creative work of “rogue trader” – as destructive as it was – reflects that a lack of understanding exists on positions approved by his employer. Moral: SOCGEN probably got what they deserved – of course, affecting the little guy’s lot – and will hopefully, go out of business. (Sorry if you have money there. Evidently, they will manage onward, and upward.)
Innocent Man, after the lawyers figure out their privileges
On CNN, I missed the opening of this tragic story. Alton Logan spends 25+ years in prison on a crime he did not commit. Two lawyers, Dale Coventry and Jamie Kunz, know the real killer: Andrew Wilson that has invoked attorney-client privilege, and according to the CNN legal analyst, has no recourse until their client dies. (Which he did.)
First, the attorney-client privilege is supposedly sacrosanct, only a potential prospect of a crime can loosen the lips of these paragons of the legal system. Yet the moral imperative should have loosened them. An innocent man is jailed; the real criminal is all ready behind bars (and dies there); no injustice can come from the freeing the one, at the expense of the other.
Yet these lawyers can actually use the “I’ll lose my ability to practice law and be disbarred and shamed” argument to support their dilemma, or the “attorney-client system works on trust” morass as cover. Bullshit. Only the idealized novels of John Grisham could a fiction exist.
Lawyers don’t go that “extra mile” as much as they go that “extra dollar” for you. These ones went to the “extra mile” in getting a notarized statement, long ago, that reflects the existence of this evidence that will release the Andrew Logan after 25 years.
On March 17, 1982, Coventry and Kunz drew up an affidavit:“I have obtained
information through privileged sources that a man named Alton
Logan who was charged with the fatal shooting of Lloyd Wickliffe (sic)
at on or about 11 Jan. 82 is in fact not responsible for that shooting that in
fact another person was responsible.”
Each lawyer signed it, as did a witness and a notary public. Then they
sealed it in a metal box. “We were freaked out because it was really volatile
and because the state was seeking the death penalty against Logan,” said
Coventry, who has kept the box ever since.Kunz said they prepared the document
“so that if we were ever able to speak up, no one could say we were just making
this up now.”
My take: the lack of sacrifice by these lawyers, in getting this man freed, is systemic of a larger problem: putting another’s life ahead of your own. A man’s freedom is arguably the most important right we have. Whenever you have the ability to set free an imprisoned man, as most lawyers can and do, through their
actions (or inactions), it trumps the legal code. Especially when a man's life was at risk - especially if you compare an innocent man to an all ready admittedly guilty one.
If it means you lose something important, the right to practice law, or it creates a legal quandary in
the system, affecting the defense of clients, so be it. The hierarchy of the system is all ready skewed, biased toward a wide array of people. This one instance was not going to shake the foundations; instead, it could have had a positive affect on perception of allegedly competent lawyers.
Bond Insurers Possibly Get Bailed Out of Debtor’s Prison
The monoline insurers (AmBac and MBIA) were in serious trouble because they lack the ability to cover even a miniscule amount of the insured investments instruments they were backing. (With estimates of 1-5% of
capital supporting securities bundled in the sub-prime mortgage arena and
municipal bonds, amongst others.)
They were (and had been) downgraded by ratings institutes, such as Moody’s, and would cause more downgrades in the banks they are closely tied to via the investments, causing more write downs in those huge
companies – Citigroup, Merrill Lynch and Bank of America, for examples. The ratings companies are currently waiting, and not doing their job, in reevaluating “the paper” these companies are backing.
As a result, at least, New York State Insurance Dept. has decided to “work out” a deal for these buffoons. They are buffoons because they rarely pay out; and they get a license to “print money” to themselves; and yet, they screwed that up. As much as people like Larry Kudlow’s saying, “Free market capitalism—it’s still the best path to prosperity,” when a company or two suddenly gets into trouble, I notice the “work out” deal, an infusion of capital (in this case, north of 10+ billion dollars) is suddenly the “best path” instead of that huge company going under and the market readjusting.
And sure, people will lose money because of that series of misfortunate events, if it happens.
New capital may help preserve the top credit ratings for the bond guarantors
such as MBIA Inc., the industry's largest, and halt any erosion of investor
confidence in the $2 trillion of assets they guarantee. Ambac Financial Group
Inc., MBIA's biggest rival, lost its AAA grade from Fitch Ratings this month on
concern about rising defaults tied to subprime mortgages.
New York State’s insurance regulator has tried to lead the efforts, and on Tuesday said it was “engaged with insurers, banks, financial advisers, credit rating agencies, other regulators and government officials, and other stakeholders in examining and developing measures to help stabilise the market.”
“The guarantee [from bond insurers] has allowed banks not to write down the value of these positions,” said analysts at UBS. “If monolines fail, the guarantee is worth nothing and these assets have to be written down. This is the latest development for the mortgage crisis and is another negative for banks.”
If you are invested in the market, that is called risk. Uncertainty. The price of doing financial business.
The losses due to trusting people (your advisor) too much. Also know as, “life.”
We all face it. Every relationship is a hedge. Upgrading or downgrading the underlying assets of working with another human being, hoping to benefit from "our investment" in that particular person. (Spiritually hopefully.) Unexpected life turns deal us a loss. The stupidity of others causing you turmoil and losses.
Isn't that what happened to the innocent man, Alton Logan – didn't he paid the huge price in the asset of his own life. Those lawyers hedged their position “long” on that man’s life. What would have happened if he died in prison? Or gotten the death penalty instead? What would the story, if heard, been?
Jerome Kerviel losing $7 Billion dollars. To put that into perspective, it would take 132 1/4 years of losing his yearly salary, EVERY DAY, to reach that loss level. One man who spent time in the back office prior to becoming a trader – and used his computer “expertise” to trigger this situation. Quite a feat that will result in a prison term for Jerome Kerviel.
It takes talent to be this inept or this fraudulent.
But we will never know the whole truth.
And yet I commend him.
He did what many of us could barely fathom, and did it well enough to go unnoticed for nearly two years.
One man didn’t get freedom soon enough.
Thanks to lawyers looking for their freedom in "upholding the legal code."
One man had too much freedom. His conscience and his master were “out to lunch.” French. Gotta love
Insurance companies with too much freedom, and given more by a “free market” that ain’t so free, since no one really wants to pay “the price” of just “doin’ business.”
That's my rant. I'm back!!!!