i thought he was paid take contrary positions of the bank...
Posted on 02/10/2008 12:14:34 AM PST by TigerLikesRooster
Why Kerviel is so unsettling
By Christopher Caldwell
Published: February 8 2008 18:27 | Last updated: February 8 2008 18:27
“You lose a sense of the amounts when you’re doing this kind of job,” the rogue trader Jérôme Kerviel told Agence France-Presse this week. “Everything gets dematerialised. You can get carried away.”
It is possible Mr Kerviel was just using the interview to set up his legal defence. French authorities have accused him, after all, of forgery and breach of trust.
Mr Kerviel had risen from the back office at Société Générale to become a “warrant arbitragist”. His job was running pairs of complementary positions, the one hedging the other. Mr Kerviel allegedly used his knowledge of middle-office security procedures to fabricate hedges. He thereby disguised risky speculations as safe arbitrage – resulting in a collapsing position of €50bn ($72bn) that it took his employers three days and €6.3bn to unravel.
But in speaking of dematerialisation and getting carried away, and in plausibly claiming that “enrichissement personnel” was the furthest thing from his mind, Mr Kerviel may actually have identified better than anyone to date what is so unsettling about the debacle in which he is the central figure.
There has been a strong populist tinge to much of the commentary, which has focused on greed and on the mathematical complexity of the structured equity derivatives business that Société Générale can claim to have pioneered. Casino capitalism has been invoked and Mr Kerviel has been lionised on French blogs as its saboteur (if an unwitting one). It has even been suggested that Société Générale winked at Mr Kerviel’s misdeeds as long as they were remunerative – a dubious theory.
Mr Kerviel’s behaviour reveals problems not just in modern capital markets, but in modern society. In an age of technological sophistication, the ability of a single stubborn person to muck up a system has increased dangerously.
Earlier this decade, the US columnist Thomas Friedman made this point forcefully in the context of terrorism, charting the rise of what he called the “super-empowered” individual. Mr Friedman meant someone who can single-handedly acquire, build or use mighty military weaponry. Mr Kerviel’s actions show that a super-empowered individual can get his hands on destructive financial weaponry, too.
As someone told the FT this week: “What is striking here is the contrast between the mediocrity of the trader and the scale of the catastrophe.”
The report on the Kerviel affair released on Monday by Christine Lagarde, France’s finance minister, addressed this problem not in terms of empowerment but by drawing a distinction between gross and net exposure.
“Monitoring of deals today is focused on the net amounts of [investment] positions, which allows us to assess market risk,” the report ran. “Heightened attention must also be paid to gross amounts, which reflect the degree of an establishment’s liability [engagement].” This new preoccupation with gross liability reflects a widespread unease about little traders with big portfolios.
Mr Kerviel knew the ways of the back and middle office inside-out, from senior traders’ passwords to the time of night when accounts were reconciled. He allegedly used all sorts of stratagems to avoid detection – forged e-mails, internal counterparties that allowed him to avoid margin calls, transactions marked “pending” to avoid immediate reconciliation and so on. He claimed that other traders had done the same, albeit “at a lower level”. While this allegation, if true, would not exonerate Mr Kerviel, it is disturbing.
There has been a lot of talk in recent weeks about the especial laxity of Société Générale’s monitoring of its traders. As one trader told Les Echos: “They were running a Ferrari with Citroën brakes.” This has the ring of after-the-fact tut-tutting. Société Générale’s system seems to have worked perfectly well at curbing irresponsibility in its star traders – but it did not work to curb the irresponsibility of a middling trader who knew how to get around the system. Why not?
The stars of the trading floor resemble the stars of professional sports. In both walks of life, there are a lot of “intangibles” – it is hard to break down the relevant gifts that go into making a superior performer. Sometimes you see a basketball player, with a clear path to an easy basket, attempt an absurdly elaborate reverse slam-dunk and miss. Coaches used to bench players for this kind of indiscipline. They do not any more, because they understand something about human nature.
Sport looks like a practical job, built around the accumulation of points. But inside players’ heads, sport is a heroic succession of brilliant stunts. It resembles a dream. That dream is a mighty force. The frame of mind that leads a player idiotically to mess up an easy basket is the same frame of mind that allows him to make 10 consecutive three-pointers as if he is in a trance. Coaches indulge their players because they sense that harnessed fantasy is often more practical than practicality.
Like athletes, traders tend to go for the gold, to follow their dreams, to trade to the extent of permissible risk. In such situations, the goal of their companies is not to kill that wild ambition by introducing a voice into traders’ heads saying: “I don’t feel right about this.”
It is more efficient to “subcontract” this kind of self-examination. Enforcement becomes a substitute for morality. Once that happens, conscience becomes unnecessary. In fact, it becomes an encumbrance. The problem is not the rise of the super-empowered individual. It is that the super-empowered individual tends more and more to be an amoral individual.
The writer is a senior editor at The Weekly Standard
Statement of the year, at least.
this kid is a freak. if he wasn't being paid off by outsiders to waste his firm's capital like this -- and it seems he wasn't -- then his activities are beyond lunacy and irresponsibility. they were purposeless. using the theme of the article, to wield such power to no purpose whatsoever has to be beyond insane, nearly evil.
Blame Kerviel!
Societe Generale played a game that no other bank in the world did in such a manner, and Jerome Kerviel wasn’t paid as much for having such responsibility.
I am afraid something went wrong with those mathematical models (and probably secret information) and he is carrying the can.
occam's razor applies.
i thought he was paid take contrary positions of the bank...
In 1973 an Italian engineer named Roberto Vacca wrote a book (”The Coming Dark Age”) about the instability of complex systems - bad theories underlying them and bad construction/implementation.
In 1973 an Italian engineer named Roberto Vacca wrote a book (”The Coming Dark Age”) about the instability of complex systems - bad theories underlying them and bad construction/implementation.
In 1973 an Italian engineer named Roberto Vacca wrote a book (”The Coming Dark Age”) about the instability of complex systems - bad theories underlying them and bad construction/implementation.
I REALLY like that one!
>>this kid is a freak.
Remember, this is the generation whose role model “IS” Bill Crinton.
Unfortunately, when we consider the behavior of Enron and Ameriquest employees, it appears Kerviel’s “super-empowered” behavior is becoming more normalized and less “freakish”.
Cheat your way through university (because everybody does it) and then go join the Enron/Ameriquest boiler room. Dishonesty and greed are rewarded; might even end up with an Ambassadorship to the Netherlands.
You indicate your lineage.
You apparently have read much into my opinions that I haven't even hinted at. Nothing is so dismaying to one who thinks about what he writes. It's like playing music to people who have iPods in their ears.
.
I think part of understanding this story is to understand the structure of French society as it has always been (not like it claims to be with the “Liberty, Brotherhood, Equality” crap which as one French person put it to me - “they’re only words”).
The aristocracy is alive and well in France, the events of 1789, 1830, 1849 notwithstanding.
Kerviel was the kid from the provinces (Brittany), definitely not well-born, went to a 2nd or 3rd tier school, and ended up in a 2nd or 3rd tier job, which, at least at the beginning, was not even in Paris.
Kerviel believed himself to be special, but pretended to be what the oustside world saw him as, the slow-witted provincial. Meanwhile in his head, he was the guy who was going to claim his place in the sun, the guy who was going to prove everyone wrong and claim for himself what was rightfully is.
A very French story, and one that is told in “The Red and the Black” among other places.
It is simply that nothing is what it seems in Continental Europe, especially in France, concretely among the French elites and more precisely in the French banking sector.
It has to be a very shrewd razzor to be applied to them.
what I said about evelKernevil may apply in some measure to his bosses at socgen as well - their story stinks every bit as much as his does.
Guys like kervile are bots; he was caught and then "went on holiday to the beach." What kind of bullsh3et is that?
If it is just as it appears, then it is an astronomical case of irresponsible, spineless behavior from the top down.
I'm getting visions of europeans slouching around with cigarettes dangling from their mealy mouths; human wet-paper-bags.
For all we know it might have been a $7b investment by islam in the destabilization of the west....
ok, maybe a little too much coffee.
or not.
Why did you post this about someone we don’t even know!
Jérôme Kerviel (born January 11, 1977)[1]Jérôme Kerviel grew up in Pont-l’Abbé, Brittany.[6] His mother, Marie José, is a retired hairdresser and his father, Charles, who died in 2006, was a blacksmith.[7] Kerviel is married, but he and his wife recently separated.
[8] is a French trader who has been charged with criminal breach of trust and accessing computers illegally pertaining to equity index futures trading within Société Générale, resulting in losses valued at approximately €4.9 billion.[2] Société Générale characterises Kerviel as a rogue trader and claims Kerviel worked these trades alone, and without its authorization. Kerviel, in turn, told investigators that such practices are widespread and that getting a profit makes the hierarchy turn a blind eye.[3] The current investigation involves what is reported to be the largest fraud in banking history.[4][5]
well, it seems quite obvious that centralization is fraught with risk, even as the tendency toward it is as inevitable as gravity.
It seems all of creation is reaching for The One; "economies of scale" demand it in developed civilizations. Of course, man's efforts to make himself The One are doomed to be Towers of Babel over and over.
But it is telling how all of creation speaks of the existence of and desire for The One.
Anyway, given the bent of my thoughts, the book looks too tempting to ignore. I'm going to have to hunt it down now. He appears to have added some things to it...I just found this.
The Inspired genius of our founders was that competing interests would keep us from rebuilding Babel; or ensure its destruction when it got too high. But at some point, The Almighty Himself will clearly have to save us from ourselves.
Guys like kervile are bots; he was caught and then “went on holiday to the beach.” What kind of bullsh3et is that?
Like most embezzlers, he was the “dedicated” employee who *never* took time off - lest someone unravel their web of deceit. Most financial institutions have policies either mandating time off *for just this reason* but at SocGen it seems to have been a “best practice” and not a mandate. What’s more this guy got around all sorts of other rules and regs, why not this one?
Eventually however they said, look my dear boy, you *must* go on vacation.
He did, someone else got access to his books and he got caught.
So he got caught because he went to the beach, he didn’t get caught and then go to the beach.
Oversight.
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