Sunday, January 27, 2008

More on the Rogue Trader

We are starting to see the fallout from the actions of a rogue trader, Jérôme Kerviel, in France who lost $7 billion of bank Société Générale’s money.

Bank officials insist that this rogue trader acted on his own. The bank’s investors aren’t so sure. I don’t see what difference it makes. Huge bets were made that put all of the bank’s assets at risk. What difference does it make whether Kerviel acted alone or not?

Either the bank officials are guilty of authorizing these huge bets or they are guilty of running a bank with such lax safeguards that a junior trader could put all the bank’s assets at risk. The end result is the same for the bank’s investors: they could have lost much more money, and the bank officials are to blame.

Even if these bets had made money, instead of losing $7 billion, bank officials would deserve to be held accountable for taking unwarranted wild risks.

If it turns out that Kerviel made fraudulent trades, he would deserve to be punished. But this punishment should be roughly the same as if he had lost only $7 million. The difference between $7 million and $7 billion is the responsibility of bank authorities.

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