Sunday, January 27, 2008

Kervielology 2

versac has some lucid thoughts on why Société Générale's explanation isn't playing well in Poitiers. Back in the Nixon days, the type of explanation that SG has put out would have been called a "modified limited hangout." It raises more questions than it answers. Pierre Moscovici thinks so too. And Bakchich.

ADDED LATER: On the blog of Alain Lambert, UMP senator and former budget minister, A. B. Galiani explains the controls on options trading and offers his opinion that these controls could not have been circumvented by one person acting alone.

HERE is SG's explanation.

And here are more doubts.

And more technical information.

7 comments:

Quico said...

Thanks for this. Personally, I find this kind of story fascinating: it's only at moments like this when we get to glimpse just how rickety the whole structure of post-modern finance is. There's a deep, morbid fascination in it for me, the way layer upon layer of dissimulation falls away as the pillars of financial capitalism are forced to accept that one man, just one man, can shake the system to its foundations. Absurd though it is, I find the lionization of Kerviel perfectly understandable, intuitively appealing - he taps directly into our fin-du-mondisme, our fantasies of milenial collapse, of witnessing the system seize up completely, unable to digest the actions of one man, just one man.

As my favorite writer put it, Kerviel's actions tap into some deeply primitive part of our psyche, pushing us to

"...dream of the splendorous day when the roofs of the greenhouses will cave in and the zoo cages will burst open; the plants and animals will escape their taxonomies; all machines will start their long, slow return to their home in mother earth and through the broken fragments of conceptual edifeces we will see the growth of myth and song, liberated."

The temptation to cast kerviel in a tragic-heroic role is strong, too strong...overpowering: he is Samson behind a trading terminal.

Anonymous said...

If the system was "rickety", this would happen often. I'm getting tired of all the "argent fou" comments in the French media. Out of the billions of trades that occur around the world every week, this kind of incident is rare (though not as rare as what he hear about; there are others that are covered up).

Kirk

Quico said...

Kirk,

You sound like the crazy general in Dr. Strangelove..."I hardly think you can condemn an entire program because it made just one mistake..."

Anonymous said...

Francisco,

You sound like the French far lefties with their gloom-and-doom last days scenarios.

(With all due respect...)

Kirk

Anonymous said...

Anyway this whole event is a lose-lose situation for the SG.

Case #1: it turns out Kerviel is a scapegoat. The SG lied to cover a sub-prime scandal, and its reputation suffers. Some SG executives might end-up in the same prison cell as Jerôme. Kerviel makes money out from the sale to Hollywood of the rights on his book (published in 2012).

Case #2: it turns out Kerviel is a genius hacker. The SG is ridiculed for its lack of internal controls, and its reputation suffers. Kerviel makes even more money out from the sale to Hollywood of the rights on his book (published in 2012) and after his jail term, he becomes a renowned security consultant.

The only good news for the SG top executives is that they might easily find another top-paying job if they (finally) get fired. That is if La Défense is like Wall Street (see the NYT article "What’s $34 Billion on Wall Street?", LANDON THOMAS Jr., Jan 27th 2008)


That being said, as Kirk does, I don't think this story is about a dysfunctional global financial system. It's about incompetent (or non-assuming) executives who lost a year worth of profit and should be happy that it wasn't worse. It's actually a good example of paying cash ones mistakes.

Anonymous said...

The Alexandre Delaigue piece that Art linked to as "more doubts" is particularly good. It's got a very clear explanation of what supposedly went wrong, and pours a bit of cold water on some of the wilder conspiracy theories.

But, if anything, it's too kind to SocGen. According to (by now) yesterday's Le Monde, it now appears that Kerviel had been putting phony trades on the books since 2005, and there are hints that other traders may have been doing the same thing. This implies a failure of the bank's internal controls so staggering that you'd think they'd be running to explain it as losses in the American mortgage market. (Which would not attract nearly as much attention; we're talking here about a mere $7 billion loss, but Citigroup just wrote off $18 billion in now-worthless mortgage-backed securities --- no longer just "subprimes" --- with the likelihood of more to come).

Anonymous said...

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