Thoughts on the Bank Trading Desk Scandals

The losers make news, where are the winners?

by Roger Bourke White Jr., copyright Sep 2011



Nick Leeson, Jerome Kerviel and Kweku Adoboli were losers: They bet and lost, and now they are either in jail or on the way, and the banks they worked for have taken almost unimaginable hits: billion dollar loses from the actions of "solo rogue traders" as the banks call them.

But this has happened three times in the last fifteen years.

Three losers... I now am asking: Where are the winners?


Third time is a...

In 1995 Nick Leeson collapsed Barings Bank with $1.3 billion in speculative investing gone sour. In 2008 Jerome Kerviel swallowed 4.9 billion euros of Société Générale money. In 2011 Kweku Adoboli sucked $2 billion out of UBS.

Ouch! Ouch! OUCH!

Fool me once, shame on you.

Fool me twice, shame on me.

Fool me three times... Eh?

But the interesting question for me becomes: These guys are the losers: Where are the winners?

The fact that this kind of thing has now happened three times and caused huge embarrassment as well as loss each time indicates that something is sustaining this environment. It's not being fixed, which means that not fixing it is more profitable than fixing it.

And, again, these guys are the losers. These guys did it wrong. Where are the winners, the guys that did it right? So far they seem to have quietly walked away with their winnings.

I'd be resting a lot easier now if I'd heard some stories about these banks that said, "We've caught X, who made a billion from improper investments. He didn't hurt the bank, he walked away a winner, and he's been living nicely but quietly for many years now."

Until we hear those stories we are hearing only half the story, or less.



I read this series of solo trader mess stories as indicating that all the sound and fury that politicians and media have tossed around for the last decade about "regulating greedy bankers" is another example of modern day goat sacrificing. These rogue trader incidents indicate that the media and the politicians have their attention on the wrong aspects of this risky money issue. Which means what they are dealing in is modern day religion: What is being done by the media and politicians is important because it makes many people feel good, not because it solves an underlying problem.

The media and the politicians are focused on the emotional side. They are trumpeting feel good solutions. Meanwhile on the pragmatic side, the side where the real pioneering banking is happening, something mostly unrelated is happening. This other side is happily going on somewhere else in the banking realm and has been mostly off the media/politician radar.

I'm shocked! Simply shocked!

...In fact, I don't mind this too much. As long as banking regulation is mostly about goat sacrificing, the smoke screening bothers me no more than the goat sacrificing.

But I do think it's sad. I think we as a community could do our banking a whole lot more efficiently, safely and transparently. But the first step towards doing better banking is to recognize how much banking is affected by The Curse of Being Important -- a purely emotional element -- and work towards eliminating that.


Update: This 17 Sep 11 WSJ article, 'Rogue' Trading Lasted 3 Years by Paul Sonne, also includes a rogue's gallery of ten other traders, many with companies other than banks.

Update: The media is beginning to get a handle on this rogue trading situation. This 20 Sep 11 WSJ article, ETFs' Dangerous Trading Loopholes by Andrew Peaple, give some feel for where the problem originated and how big the loophole is, and it's a big one.


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