Jan
27
Did Jerome do this?
Filed Under Sunrise on KGMB9
Jerome Kerviel, the trader for Societe Generale who ran up $7.2 billion in losses, is now being blamed, or credited, with singlehandedly causing the Federal Reserve Board to undertake its biggest cut in interest rates ever, an emergency action that will make houses more affordable in Hawaii and calm down the affluent mainlanders we rely on to take expensive vacations here.
Societe Generale, the second biggest bank in France and not the one that owns First Hawaiian Bank (the biggest, BNP Paribas, owns First Hawaiian parent BancWest), denies that Kerviel’s trades moved markets that much. But Societe Generale has already misled us about Kerviel, whom it initially portrayed as some kind of criminal mastermind but who now turns out to be an inept nebbish who happened to know from a previous assignment in the audit department how to cover his mistakes by faking paperwork for opposite trades from the ones he was actually making.
The New York Times over the weekend had no trouble finding stock market analysts who felt that the markets were indeed much affected by the bank’s frantic efforts on Martin Luther King Day to get out of the positions Kerviel took. I’m just reporter and explainer, no expert on the stock market, and even I said in a blog post last week that European and Asian markets tanked Monday without any new bad economic news.
Fed Chairman Ben Bernanke, who went into the office to work that day even though it was a federal holiday, canceled a trip and set up an emergency meeting with the other Fed governors. The result was the three quarter percent cut in both the federal funds rate, which the Fed has used in recent years to push other rates, and the discount rate, its former favorite mechanism for doing the same thing, the latter underlining the message sent by the former.
Societe Generale, which had recently been hailed by financial analysts as being well-run, based on performance figures that we now know were skewed by Kerviel’s shenanigans, says it is conducting an internal inquiry to learn how Kerviel managed to fake trades for so long without anyone noticing. It’s quite an embarrassment. The whole idea of giving your money to others to invest is that they’re more careful with it, or more able, than you are. Like the subprime mortgage default crisis, this undermines confidence in the whole system by conveying the impression that a lot of people in the financial world behaved in a slapdash way and, when big trouble arose, threw up their hands like it couldn’t be helped.
For me, the issue isn’t whether Jerome caused the stock market panic last week that led to interest rates being cut. It’s whether investigations will identify any particular Jacques-ass at Societe Generale who should be held accountable for insufficient oversite and perhaps be cut loose, sans “parachute d’or.”
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