Bankers call the tune but we pay the piper

Times of London ^ | 01/31/08 | Carl Mortished

[TigerLikesRooster]

January 31, 2008

Bankers call the tune but we pay the piper

Carl Mortished: Business Commentary

The music stopped and everyone found a seat. As party games go, the version of musical chairs played out in Europe yesterday lacked that frisson of excitement created by uncertainty. In Paris, Daniel Bouton survived as chairman of Soci鴩 G鮩rale; Mervyn King was told to carry on running the Bank of England for a further five years; and in Zurich, Marcel Ospel remained at the head of UBS.

As if thumbing his nose at his shareholders watching from the sidelines, MrOspel took the running total of sub-prime mortgage losses at the Swiss bank to $18 billion (£9.1 billion) as he announced a further $4 billion in writedowns less than a month after he admitted the bank could not assess its exposure to the rotten assets in its books.

The upside was that no one was disappointed, left unhappy, unloved and without a job. Apart from the shareholders, the taxpayers and people lower down the chain of command who were not invited to play. At Soci鴩 G鮩rale, the supervisor of J鲦ocirc;me Kerviel, the “rogue trader”, has been suspended and at UBS, Mr Ospel has shed senior lieutenants, its financial and risk officers and Peter Wuffli, the chief executive who resigned in July.

It is all rather different from Wall Street, where boards lost little time in removing the captain from the bridge when his ship was holed by a sub-prime iceberg.

There is a common thread that links the continuing service of the three European bank chiefs which goes beyond timing. They have all been subject to political pressure to do the “honourable” thing. The Bank of England Governor has survived bruising criticism from the Treasury Select Committee over his handling of the Northern Rock fiasco, while Mr Ospel is widely disliked for his bumptious management style which ill suits the conservative world of Swiss banking. But it is Mr Bouton who deserves the survival medal; his resignation was demanded by none other than the President of France. That shows courage on the part of the SocGen board but Mr Bouton is by no means off the hook. The Bank of France has asked why risk controls appeared to have broken down at SocGen and an independent audit committee, of which Mr Bouton is not a member, will investigate the “mechanism of the fraud” by which Mr Kerviel created a bonfire with SocGen's balance sheet.

It may be that these three men have survived because everyone knows that the problems inherent in our banking system lie much deeper than individuals. Mr Kerviel's spectacular antics served to obscure a €2 billion (£1.49 billion) writedown on SocGen's sub-prime exposure, a loss that would have caused the French bank extreme embarrassment.

If the SocGen auditors want to understand the mechanism of Mr Kerviel's deception, they could do worse than listen to what he says in his testimony to the courts. He has already recounted instances in which his superiors must have been aware that he was breaking the rules as he traded beyond his authority, notably his reporting of a €55 million trading profit in 2007, an amount he could not have legitimately earned within his operating limits.

Mr Kerviel's blunt explanation is a parable for our times: “I was making cash, so the signals were not so worrying. As long as we won and it didn't show, nothing was said.”

[TigerLikesRooster]

Ping!

[Uncle Ike]

” Mr Kerviel’s blunt explanation is a parable for our times: “I was making cash, so the signals were not so worrying. As long as we won and it didn’t show, nothing was said.” “

I’ve been holding my nose and listening to CNBC in the background this morning, and, maybe I’ve got my ‘cynical’ filter set to ‘high’, but it sounds to me like every ‘expert’ and/or ‘analyst’ has been intoning some variation of “Pay no attention to that man behind the curtain!”

We’re being flim-flammed, and I don’t like it one bit....

[TigerLikesRooster]

Pay no attention to that man behind the curtain!

Right. Anybody who does it a tin-foiler. That would be their party-line.

CNBC doing its public service to 'calm down the ignorant masses.':-)

[Uncle Ike]

” Right. Anybody who does it a tin-foiler. “

The boy who cried, “The Emperor has no clothes!” was immediately set upon by the crowd and torn to shreds.. (..and now you know the *rest* of the story...)

I’m torn as to which is worse — the Liberals mis-stating the problem in order to apply exactly the wrong solution..

Or so many of our number flatly refusing to even consider that there might be a problem - viciously attacking anyone who dares to intrude on their rosy fog.....

[TigerLikesRooster]

I have this mental picture that those two groups would eventually kill off each other to make us feel better. They do hate each other. I can only hope.

[Uncle Ike]

” those two groups would eventually kill off each other “

A cheery thought — except that both groups are practicing scorched-earth warfare, and the collateral damage is us...

(And I’m too old to consider with sanguinity the prospect of taking up subsistence farming...)

[CRBDeuce]

All banks will change their names to ‘FNMA’...then Mr. Raines and Ms. Gorelick will be ‘pronounced’ innocent of all charges....and we can get happily back to our One World.