The Wall Street Journal has a very perceptive article about the class nature of Jerome Kerviel, a striving person from a modest background, who was trying to compete with and win approval from his more fortunate colleagues. Kerviel's story is obviously self-serving, but much of it rings true -- especially his ill-fated efforts to be accepted.
Gauthier-Villars, David and Stacy Meichtry. 2008. "Kerviel Felt Out of His League." Wall Street Journal (31 January): p. C 1.
"In 2005, Jérôme Kerviel got the biggest break of his career: a promotion out of Société Générale SA's lowly back office -- a place so uncool it was dubbed "the mine" -- and into a coveted job as a trader at the powerful bank. But if clawing your way up from the mailroom wins you a badge of honor in the U.S., not so within in the rigid class system that defines the upper ranks of French finance. Mr. Kerviel's effort to impress his colleagues now appears to be a motivating factor behind his disastrous trading spree, which burned a $7.3 billion hole in Société Générale's books."
""I was held in lower regard than the others because of my educational and professional background." Mr. Kerviel told prosecutors over the weekend. His comments were from a transcript and confirmed by prosecutors and his lawyer. Trading might not be rocket science, but Société Générale has a tradition of drawing its star traders from France's most elite schools. Many have doctorates in disciplines such as astrophysics or nuclear science .... The bank's top brass, including investment-banking head Jean-Pierre Mustier, is from the engineering school Polytechnique, the M.I.T. of France. Chief Executive Daniel Bouton graduated from the prestigious Ecole Nationale d'Administration, a school known for churning out high-level government functionaries that run the country. "If you graduated from ENA or Polytechnique, you have an absolute tenure; if not, you miss out on all the good job opportunities," according to a former Société Générale executive. "This rift exists all over the bank."
"The high-pressure atmosphere has taken its share of victims. In June, a trader in his 30s who worked on the same floor as Mr. Kerviel jumped to his death from a footbridge near Société Générale's towering headquarters in the La Défense suburb of Paris. Moments before his death, Mr. Marchet says, a supervisor had interrogated the trader for losing about €9 million in unauthorized trades. "He took his bag, left Société Générale and jumped off a bridge," Mr. Marchet says."
.... that death came in the wake of two other suicides in recent years. In 2005, a trader jumped to his death from a ninth-floor window at the bank's headquarters, Mr. Marchet said. A year later, a back-office employee jumped in front of a train commuting between La Défense and the center of Paris."
"The trading desk where Mr. Kerviel landed, the "Delta One" unit, deals with trades aimed at making small profits with stock-market fluctuations. Mr. Kerviel, who hails from a small town in Brittany and graduated from a little-known university, suggested in his statement to prosecutors that he hoped to curry favor with people who counted."
"At first, Mr. Kerviel's strategy paid off -- too well, in fact. His gains snowballed so quickly that, at some point, he had locked in a gain of €1.6 billion, about a third of the bank's overall net profit in 2006. At that moment, "I don't know what to do," Mr. Kerviel told investigators. "I am happy, proud, but I don't know how to justify my gains"."
"What seemed to disappoint Mr. Kerviel was that his trading prowess wasn't being acknowledged. He told prosecutors that he believes managers were aware of his methods but never spoke up as long as things were going well. "I cannot believe that my superiors did not realize the amount I was risking," he said in the interrogation. "It is impossible to generate such profit with small positions. That's what leads me to say that while I was [in the black], my supervisors closed their eyes on the methods I was using and the volumes I was trading."
4 comments:
Veering off track a little, it seems to me that soiological analysis of North America is much more in order. In preference to a brief examination of a (relatively powerless) rogue trader, that is.
After all there is now enough evidence to hang two former US Presidents for murder (Nixon) and Johnson), if they were still alive, that is.
"..Before her death on June 22 2002, prolific author and lecturer Robert Gaylon Ross had the opportunity to conduct an 80 minute sit-down interview with Madeleine Duncan Brown [LBJ's mistress].."The group met for a party in Dallas hosted by Clint Murchison, another business tycoon with close links to the Genovese mafia, on November 21st 1963, the night before the assassination. Those present at the event included J. Edgar Hoover, Clyde Tolson, John J. McCloy, Jack Ruby, George Brown (of Brown and Root), numerous mafia kingpins, several newspaper and TV reporters, and Richard Nixon. The party began to wind down at around 11 o' clock when the attendees were shocked to witness the arrival of Lyndon Johnson who had traveled from Houston. Clint Murchison immediately called a meeting. "They all went in to this conference room.....Lyndon didn't stay that much in the meeting and when he came out....he grabbed me by the arm and he had this deep voice and he said, 'after tomorrow those S.O.B.'s will never embarrass me again - that's no threat - that's a promise.'…. "It was a political crime for political power," said Brown as she highlighted how people who were set to testify against Johnson for indictment proceedings, related to illegal kickbacks Johnson was receiving from agriculture programs before the assassination, were mysteriously set-up in homosexual scandals or found dead having allegedly shot themselves five times in the head. … Having had her own (and LBJ's illegitimate) son and nanny disappeared by Johnson's hitmen after the assassination, and upon hearing of the strange deaths of many other people connected to the events in Dealy Plaza, Brown felt that she was safer out in the light and decided to let the world hear her story. "
LBJ Night Before JFK Assassination: "Those SOB's Will Never Embarrass Me Again"..
http://www.prisonplanet.com/articles/august2006/300806jfk.htm
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"The "deathbed confession" audio tape in which former CIA agent and Watergate conspirator E. Howard Hunt admits he was approached to be part of a CIA assassination team to kill JFK was aired this weekend - an astounding development that has gone completely ignored by the establishment media...."
“In 2007 his son released audio tape of Hunt naming President Lyndon B. Johnson and others as the orchestrators of the John F. Kennedy assassination.[1]”
http://www.prisonplanet.com/articles/april2007/300407deathbedconfession....
An interesting analysis by a French sociologist available (in French) here:
http://www.mediapart.fr/presse-en-debat/pouvoir-et-independance/28012008/finance-au-coeur-du-systeme-des-traders
Some random points:
Opportunity cost
As a retired physicist I, once in my career, had the opportunity to shift into becoming a "quant" in the financial industry. I declined, but as the article indicates there are many others with advanced degrees that have made this choice (I know of some).
All these highly trained people could have been working on solving the world's big problems concerning energy, materials science, and a host of other pressing issues, but aren't. Does this have anything to do with the sharp decline in fundamental advances that have been made over the past 50 years?
The laser and the transistor are the last two big breakthroughs. The transistor is now 60 years old and the laser 47.
Progress has been in technological refinement (engineering), but not in work on the fundamental phenomena of nature. The big outstanding areas with the most impact remain controlled fusion and superconductivity. Apparently biologists don't make good "quants" and progress in this area has been dramatic.
Speculation
Kerviel was trading index-based instruments. This is betting of the value of, say, the Dow Jones average. There is no rational argument that can be given as to why a bank would engage in such activity. It's is pure speculation and provides no residual benefit to society. The only result of such trading is that those who bet wrong transfer some of their capital to those who guess right.
They might as well meet at Monte Carlo and play craps. What sort of financial system permits this sort of unproductive speculation? What ever happened to the concept of the "prudent investor"?
All economic arguments for the existence of a secondary securities market seem to have been discarded in this world of financial musical chairs.
Tulips anyone?
While I am sure there are some class and sociological angles to this story (which I am not in a position to comment about), to me it says a lot more about managerial accountability than anything else.
Despite attempts to portray Kerviel as a lone hacker type, he was not apparently that skilled in programming. He was simply abusing the poorly designed management information systems at the bank in rather straightforward way. It is obvious that most executives do not understand how the information they get gets to them and how easy it is to disrupt "real" information and feed them B. S.
I am sure the huge cash that those managers make can be justified in some cases, its just in the majority of the cases its a sad case of exploiting the quality and integrity of those workers who do the "real" research and information management. That system is extremely fragile when it needs to rely on the "good will" of the "back office".
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