Thursday, October 7, 2010

Throwing Jerome Kerviel Under the Bus

I feel sorry for Jerome Kerviel. His face was a picture of devastation. His life is in tatters, and the next three years will be spent in prison. I realize that Kerviel is not an innocent man. He lied and hid his losses using his knowledge of risk management systems gained in previous jobs. What he did was stupid and financially damaging to SocGen - he came close to ruining the bank. There is no excuse for what he did.
There is also no excuse for SocGen to have let it happen.The most cursory of glances into trading accounts would have flagged up issues. The most elementary of audits would have caught Kerviel before his mistakes were monumental. The bank repeatedly ignored warnings and red flags concerning Kerviel's positions, preferring instead to focus on the profits he appeared to be making. SocGen is guilty of extreme moral hazard, and should also be punished.
If there is a lesson to be learned from the trial of Jerome Kerviel, it is that the big banks almost always win. A big bank can gamble its clients' money, let traders take on huge positions with no risk or leverage controls, and cut corners on technology and common sense and still win the day. Government, and that includes judges, will continue to support them because they are 'systemically' important. The only answer is to force banks to take steps to prevent a Jerome Kerviel from happening again. Regulation in the form of forcing banks to employ real-time risk management, trade monitoring and surveillance might ward off another $4bn loss. And prevent what actually appears to be abject stupidity in the name of profits. 

Monday, October 4, 2010

Wall Street: Proof that Money DOES Sleep

All hyped up by the SEC's flash crash report, I trotted off to see Wall Street: Money Never Sleeps on Sunday. The movie was proof that, even if money itself doesn't sleep, movies about money can send you to sleep. Oliver Stone's take on the 2008 financial crisis was almost as bad as CNBC's original take. (And then we had to watch CNBC do it ALL OVER AGAIN in the movie.) Seeing non-financial types squirm over explaining credit default swaps and collateralized debt obligations does not amusing cinema make.I think whoever wrote the screenplay fell asleep trying to understand the nuances of a very complicated series of events and issues.
I loved the "A" story - Gordon Gekko gets out of prison, wants his money back so he can get back to raping and pillaging the idiots in this world. But somewhere along the line, the "B" story took over - mixed bunch of evil bankers (who the Hell was Josh Brolin supposed to be? He had John Thain's office, for sure) are....hmm. Doing what bankers do, which is not really movie material.
The "C" story - a love story between Gekko's daughter (the British Carey Mulligan was excellent as an American do-gooder) and the most-likely-to-be-killed-by-a-Disney-baddie Shia LeBeouf - took over and finished whatever promise the movie might have had. What is the point of Shia LeBeouf? He is not a great actor, his looks are odd (his nose could have been crafted for Mr. Potato Head dolls), and he is the least financial-looking type ever.
There were some good moments, however, most of which involved Michael Douglas. His Gordon Gekko character was intact, if weathered. Josh Brolin was all smooth looks and evil smiles, which could have gone a lot further. Maybe if Brolin had played hedge fund honcho John Paulson, squaring off against Gekko to see who could short the credit market the furthest without going bankrupt, we would have had more action. And I would have stayed awake.