The Real Story
Often what is reported in the press is the synthetic-homogenized version of facts it is hard to say who they are really trying to fool, the people or government regulators who as Madoff said are stupid. I have no time for such nonsense. Wild stories of grand conspiracies that claim there are people pulling the strings in a giant well thought out plan attributes way too much expertise that does not exist. They are flying by the seat of the pants trying to make immediate profits with no vision as to three steps ahead. Look at Goldman Sachs. Yes they sold the day of the high in 2007 in line with our model. But clearly not enough. They went hat in hand to Warren Buffett to borrow $5 billion and sought a bailout from Congress. They clearly did not expect the economic meltdown to that degree. These people are like dogs running the race track in Florida chasing the fake rabbit without a clue where they are going. Just for a minute, consider what is WORSE - (1) some grand scheme, or (2) no grand scheme just instantaneous gains without any concept of what is at stake? I think the latter is far more dangerous than the former for they can cause us all to crash and burn while destroying society. To prevent being prosecuted, they have so corrupted government they have screwed our future and strangely their own – they are just so near-sighted they cannot see the consequences of their own actions. Forget the giant conspiracies. It is much worse than that!
A reader who was there wrote regarding my posting on Barings and the so called “rogue” trader who was there:
“Yes you are correct about Baring Bank management knew full well what he Lesson was doing in Singapore. The management wanted to trouser their bonuses and the only way the bonuses could be “seen” was through reporting continued profitable trading — as the rest of the Baring Bank could not afford to pay the bonuses and the Baring family was not prepared to stump more money in the bank. I worked for ING Barings just after the collapse of Baring Bank and learned full well about the poor management there. ING management thought they got a “steal” (paying nominal consideration to save all the Baring businesses together) and then guaranteeing Leesons positions and unwinding the exposure over time. They — ING funneled so much money to keep the so called “deal makers” post the acquisition – in the advisory business but it was all a waste.”
London Whale Trade of JP Morgan
In April and May 2012 there was the huge trading losses that took place at J.P. Morgan’s Chief Investment Office that were transactions booked through its London branch. I have explained before that firm bounce back and forth using New York and London to avoid regulations. That is how M.F. Global went down. The NY firm can post client funds in London with its branch there and that branch must have a signature authorizing it to trade the funds by the client. The NY firm trades with other people’s money by posting client funds and in London they are seen as the US branch funds collectively.
The unit was run by Chief Investment Officer Ina Drew who stepped down when the losses came to light. They were a series of derivative transactions involving credit default swaps (CDS) that they entered into, reportedly as part of the bank’s “hedging” strategy. The trader Bruno Iksil, who is now nicknamed the London Whale, accumulated CDS positions in the market. The original estimated trading loss of $2 billion was announced.
While the media protects the banks and puts on people from the banking industry saying the whale is dead lets move on, but this exposes something important. Back in the Nineties, our Hong Kong branch opened an account for Nick Leeson, the so called rogue trader who brought down Barings bank. Our firm was always conservative and there was NO question that his superiors fully knew what was going on. We had no problem, but far too often the management of these banks claim rogue when in fact they lose money so the top brass do not lose their heads.
The number of huge losses are too many to list. If the big banks are that BAD at internal controls, then they cannot be trusted with client funds. You can’t have it both ways. Either you have good internal controls, or you do not. Are all the big banks incapable of controlling their traders, or are they blame them for losses and then say it was a one off. These claims of “rogue” traders are far too common.
Once government figures out they do not need the banks to sell debt, they are finished. They are TOO BIG to be efficient banks. They should be lending money to help small business grow not trade with other people’s money – hedge funds are paid to do that. Big banks will die on the ropes they are hanging themselves with.