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Société Générale - Jérôme Kerviel - Pawn?

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  • Société Générale - Jérôme Kerviel - Pawn?

    In a huge bank with 120,000 employees, it takes lots of people to make things happen. There are all kinds on control procedures, checks and balances to prevent abuse. How in the world can one man be to blame for loosing €4.9 billion. Is this man a scape goat or a villain? He is 31 years old. Hardly highly educated, highly skilled, and so shrewd he could out smart an entire bank.

    Where was the rest of the bank while all of this was happening? What percentage of the entire bank's holdings did this amount to? Among our readers, who has an opinion that they would like to share?
    Last edited by Loup Solitaire; 02-01-2008, 02:31 PM.

  • #2
    Originally posted by ronschaum View Post
    In a huge bank with 120,000 employees, it takes lots of people to make things happen. There are all kinds on control procedures, checks and balances to prevent abuse. How in the world can one man be to blame for loosing €4.9 billion. Is this man a scape goat or a villain? He is 31 years old. Hardly high educated, highly skilled, and so shrewd he could out smart and an entire bank.

    Where was the rest of the bank while all of this was happening? What percentage of the entire bank's holdings did this amount to? Among our readers, who has an opinion that they would like to share?
    My gut feeling is that he's just one of the unluckiest derivative traders in history and of course he'll be scapegoated. His fault? Hardly. His fault only in the sense that he is engaging in a meaningless profession that leaches precious resources from the real economy. The fault belongs to a financial institution...a bank no less....that should know better than to subject itself to the risks of the kinds of leveraged speculative transactions it was engaging in. Add this to the fact that many banks keep as close to zero reserves as possible it doesn't take all that deep a loss to send a bank tumbling down, even if the bank is technically solvent.

    The British MP George Galloway a.k.a. "Top Cat" (the guy that single handedly in just a few minutes of time totally demolished Sen. Coleman's (R-Minnesota) chances of ever running for President ) gave what to me seems to be the most heartfelt rant on this very thing on his weekend radio show...you can catch the recording of it at http://www.spiderednews.com/GeorgeGa...htm?vid=236003. His rant on this matter, which he starts to build up at minute 7 is just about white hot from 7.54-9.07...a good two minutes of worthwhile entertainment. A serious caller makes some good points about the overall situation later on starting at about the 55th minute of the show or so.
    ________________________________________________
    "Call me late, just don't call me late for dinner."-Checker Flag Bubba

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    • #3
      Originally posted by ronschaum View Post
      In a huge bank with 120,000 employees, it takes lots of people to make things happen. There are all kinds on control procedures, checks and balances to prevent abuse. How in the world can one man be to blame for loosing €4.9 billion. Is this man a scape goat or a villain? He is 31 years old. Hardly high educated, highly skilled, and so shrewd he could out smart and an entire bank.

      Where was the rest of the bank while all of this was happening? What percentage of the entire bank's holdings did this amount to? Among our readers, who has an opinion that they would like to share?
      Yes Ron that’s unbelievable ...

      As you see, "we-French" are sometimes able to break world records !

      My God … what human beings are able to do for Money : That's A REAL REAL SHAME … and of course you're right, this young man is not the only one to be guilty.

      For those who want to learn more about This scandal :

      http://www.timesonline.co.uk/tol/news/world/europe/article3253221.ece

      “In London or Wall Street this affair would have been unthinkable. In Paris, they don’t like written procedures,"
      ....
      The Prime Minister added his voice to the chorus of disbelief over the bank’s story of the rogue trader. “It is difficult for each one of us to understand how a single person can, in a relatively short time, inflict such considerable losses in a banking establishment that is moreover serious and solid,” he said.
      ….
      Among the sceptics over the bank’s version of the fraud was Raymond Soubie, Mr Sarkozy’s adviser on social affairs. “It is very surprising that a single person could run up a position of more than ¤50 billion without being detected,” he said. “There is perhaps a problem with the financial morality of capitalism beyond the specific case of la Société Générale.”
      ...
      Doubts were also voiced by Vincent Bolloré, a billionaire who is a good friend of Mr Sarkozy. “It is incredible that one guy can run up loses of such an amount,” …
      ***


      You’ll find interesting and true comments here:

      http://www.iht.com/articles/2008/01/24/business/socgen.php?d=1

      "Only a fool would accept that an inexperienced civil servant would fly a Boeing 747.
      The paradox is that so many people accept that Daniel Bouton, a politically connected French civil servant without any relevant banking experience, has been parachuted into the top driving seat of a major listed French bank. It seems like SocGen CEO Daniel Bouton had to retract his initial statement of a few days ago according to which the rogue trader was a lonely player who circumvented all control mechanisms. Nobody in the banking industry could believe this nonsense. It would not have been the first time that bank managers look at another direction when the control guys are coming in, as long as the trader makes huge profits and the colleagues and bosses share in the fat bonuses. But when the market goes sour, the rogue trader suddenly becomes the only culprit. Today, the story changed, as SocGen CEO Daniel Bouton reportedly told the workers unions that the bank had proceeded to six dismissals following the losses of 4,8 billion euros. It’s hard to believe that Bouton was not aware of this fraud. And if he were not aware, it’s even worse. Bouton is a French civil servant who studied at the Ecole Nationale de l’Administration."

      ***
      "So logically the Jerome Kervial situation should never arisen. But of course Societe Generale has acted clean in this story. Naturally they would have never covered the story up if Kervial”s dealings had been making a profit on 18th january, just as they had in the previous November. Though clearly judging from Jerome”s police statement, greed for traders has no boundaries, not satisfied with six figure salaries, they cheat to gain higher bonuses, not to diversify any profits to their own bank accounts."

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      • #4
        There should be plenty of blame to go around!

        Thanks for the interesting links! I love the way politicians and business people play together when things go sour.

        When the gentlemen in the echelon of upper management abdicate their responsibilities, this is what happens. Then suddenly, their "Lap Dog" turns into a "Pariah". And the poor boys who are paid millions can't understand how this happened.

        To get a perspective, Jerome Kerviel was paid approximately $100 plus bonus. The bonus was lavish if the profits were extraordinary. The odds were on Jerome's side. He was playing with €50 billion. The market had always taken a positive swing before. Surely it would take one more, wouldn't it? Jerome was 31 and this situation was analogous to having an average rookie in charge of winning the World Cup. No oversight. No management.

        Most banks in the world are this vulnerable. That is what is so scary. Société Générale is the one that got caught this time.
        Last edited by Loup Solitaire; 02-01-2008, 02:52 PM.

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        • #5
          Excerpt From an Associated Press Article (Paris)

          Please read this excerpt carefully. We'll probably never understand exactly what happened or why? But I noted a few statements that struck me as strange. I highlighted them in red. I added my comments in blue

          The bank said Kerviel had built up a position worth some $73.5 billion - which was eventually closed or hedged by last Wednesday with a loss of $7.21 billion.

          "The position was unwound over three days in a controlled fashion," it said.

          Jean-Michel Aldebert, of the Paris prosecutors' office, told reporters Saturday that Kerviel gave himself up of his own free will. The trader had not been seen in public since the bank announced his unauthorized trades in a statement on Thursday.

          His motives remained a mystery, and the bank said it appeared that he did not gain personally from the trades. Acquaintances described Kerviel as reserved and considerate, a young man who once taught children judo and held the door for elderly neighbors.

          Kerviel had been investing the bank's money by hedging on European equity market indices, meaning he bet on how the markets would perform at a future date.

          Germany's Der Spiegel news magazine cited unnamed traders as saying Kerviel made a huge gamble on Germany's DAX stock exchange, buying some 140,000 DAX futures. When the exchange dropped, Kerviel racked up losses that amounted by mid-January to around $3 billion, said the report, posted on Der Spiegel's web site.

          Societe Generale said it discovered the fraud last weekend and unwound the trader's losing bets starting Monday, when world markets tumbled.

          Some experts have suggested Societe Generale may have exacerbated the fall and indirectly led to the U.S. Federal Reserve's subsequent decision to cut rates.

          [Although the bank had an obligation to behave honestly and fairly, it did not have an obligation to behave stupidly. Protecting the integrity the Banks Assets should have been a primarily consideration]

          In an interview published Saturday, Societe Generale's chief executive, Daniel Bouton, dismissed as "absurd" the notion that the bank's actions helped fuel the turmoil on world markets.

          [There is a great deal of World Opinion to the contrary on this issue]

          Bouton said Kerviel had been betting throughout 2007 that markets would fall - a winning position. But the trader had overstepped his authority and was wagering much more money than he should have, Bouton said.

          [Why did the guy reverse a winning position? Especially when that position was showing signs of improving? Possibly they were on to him at this time or he was getting nervous about making too good of a showing.]

          So at the beginning of January, Bouton said, the trader voluntarily created losing positions, to neutralize his earlier gains and cover his tracks.

          [Talk about bad timing.]

          But this month's quickly dropping markets turned "this sad affair ... into a Greek tragedy: His virtual losing position became huge," Bouton was quoted by Le Figaro as saying.

          [Greek Tragedy is an understatement]

          Despite the bank's losses, which Bouton called "enormous and abnormal," he insisted Societe Generale's viability was not at risk.

          Experts and others, including France's prime minister, have questioned whether a single futures trader could have managed such large sums. Some have suggested Societe Generale might have used Kerviel as a scapegoat for other losses, like those related to the sub-prime crisis.

          The bank says the scale of the damage was so great only because of the bad timing of the discovery - right before the worst day in world markets since Sept. 11, 2001. It also fired Kerviel's supervisors.

          [Supposedly, Jerome was able utilize the secure computer ID's of several other people in other departments to cover his tracks........he had detailed knowledge of complex bank control procedures.........there were several times when outside control agencies tried to inform on him.......he maintained a complete a set of complex dual books to counter balance excessive trades over the course of a year........all to create excessive profits for his employer, which he was doing, but he lost his nerve.......and consequently he got caught.........big time!!!!!!!!! I think this guy (who people thinks looks like Tom Cruise) has got one hell of a movie contract waiting for him as soon as he gets out of jail.]

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          • #6
            Wow! Consider this!

            If as Dr Dahesh said "Nothing is accidental in life". And each of us is the same in the eye of God. Then what might God have in mind for Jerome Kerviel? He was the son of a metal worker who wanted to work in finance.

            He's young and has much of his life to live. He has become a household name overnight. He's a cult figure to some. His total actions were not evil. His intentions were not to steal money. At least not directly. If he stuck to his game plan, things may have turned out differently.

            Oh for sure, at the moment, he is probably wishing he had never been born. But as time passes and tempers cool. And as perspective sets in, what will become of it all?

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            • #7
              To Set Matters Straight

              I realize not many people are tracking this issue, but an interesting article appeared today in a respected newspaper. The article apparently has what I believe may well be the real inside scoop. The article is lengthy. For your enjoyment:

              http://online.wsj.com/article/SB1201..._us_whats_news

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              • #8
                "The Escargot Effect"

                Thank you Ron, this summary does give a good picture.

                To me, this is definitely proof that one person could potentially inflict irreversible damage on a global scale. All we have to do is change the setting a little bit, the general plot, and introduce a "switch"...

                I don't mean to bring it back to my life, but I've met people with a similar streak. They are sick and need help. For sure, they must be stopped in any way, shape or form the law can help us do so.

                But the law is sometimes vague because we have certain freedoms guaranteed to us. And even in a totalitarian state, one person can destroy the world.

                Entropy is always lurking about and ready to strike, even though it sometimes creeps ups on us at a snail's pace.
                "Fail, to succeed."

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