Thursday, January 24, 2008
Patsies at the Fed?
The revelation that Societe Generale is taking a $7 billion write-down due to the activities of one rogue trader — and additional reports that the French bank may have been unwinding those positions on Monday, a thinly traded, volatile day when Asian and European markets were rocked with losses, puts the Fed’s move in a new light. Namely, that they were taken in.Given the hysterical commentary over whether or not Bernanke should have cut or didn't cut enough, this is an interesting development that, true or not, might make the Fed a bit less quick to cut rates based on developments in the futures makets (which would hardly seem to be their mandate).
“They were sucker punched,” says Barry Ritholtz, director of equity research at Fusion IQ. “What we see now is that it was a very ill-considered attempt to intervene in equity prices.”
Officials at Societe Generale admitted that the firm was in the markets, trying to close these positions in the last few days before telling people what was going on.
No doubt the Ron Paul supporters are jumping up and down yelling "See! see!"
Further complicating matters, the hard core conspiracists think the Soc Gen rogue trader story is BS:
This type of pathetic excuse is nothing less than a re-hash of the Nick Leeson affair. Nick was the “rogue” trader who brought down Barings. After that type of disaster, you would think banks all over would establish quality controls. I can imagine how the conversation went at Societe General:Wheels within wheels.
CEO: I’m going to blame it on you.
Minion: Well, I’m going to blame it on you. You knew what was going on.
CEO: I guess we’re in a pickle.
Minion: What about that guy Jerome?
CEO: Didn’t he just start working here like two months ago?
Minion: Yeah.
CEO: Bring him in.
Jerome: What’s up?
CEO: Jerome, what do you say if we wire you 1 million francs into a private Swiss account in return for you playing the fool?
Jerome: Okay.
I just simply find it impossible to believe that a JUNIOR trader has the ability and authority over resources to bring down a bank. This is more spineless cover-your-ass behavior that is so pervasive in the halls of the Western elite. I imagine if Bouton were an incoming CEO, he’d blame the old boss much like that fellow at UBS. Since he is the boss and since his immediate minions have dirt on him, he has to blame some nobody named Jerome.
3 Comments:
By 
, at
Thu Jan 24, 09:21:00 PM:
It also could be perfectly timed medicine. After all, the Rogue had to unwind because he had massive losses. He had massive losses because the economy is going into the tank. The Fed [i]should[i/] cut when that happens.
By , at
Fri Jan 25, 12:56:00 PM:
If Jerome fell for this line, "if we wire you 1 million francs," he's a bigger doofus than Paul. The French franc (unless he is talking Swiss francs) was abolished by unelected European bureaucrats ("Eurinals") almost 5 years ago. Jerome would probably want Euros.
By 
Benquo, at
Sun Jan 27, 09:43:00 AM:
"I just simply find it impossible to believe that a JUNIOR trader has the ability and authority over resources to bring down a bank."
Traders actually take on pretty enormous responsibilities. Due to the nature of the job, there's very little direct supervision or safeguards, as that would slow down their pace and cost the company a lot of money. Also, it's not a seniority thing; many places promote traders strictly on the basis of their record. It isn't like investment banking, where you have to pay your dues.
