Indy Telecom & Industrial Media

Here are some interesting links that I’ve been meaning to post for a while –

• Old-School Economics: An interesting article on the NYT on the current recession stagflation.
• Anti-bubble: What’s up with all these attempts to coin weird sounding terms, anyway?
• It’s not over until the fat lady sings.

Last week, it was revealed that a “rogue trader” named Jérôme Kerviel working at the French bank Société Générale managed to supposedly cause a loss of $7.2 billion (€4.9 billion) for the bank.

Now, while it is quite possible that Kerviel was far from innocent, it is not easy to believe that a single trader, who apparently had very limited authority and handled back and middle-office work could have lasted this long unnoticed while playing with billions.

If he’s caused a loss of ~€5 billion on the futures market, it is quite likely that the exposure of his positions were quite possibly ten times that amount — i.e €50 billion — or more. That’s half the total capitalization of the bank. It is disturbing to hear that a small trader who is a nobody could gamble with such large sums and go unnoticed.

Even worse is SG’s claim that Kerviel did this with no person gain for himself. It could be that like all rogue traders, all Kerviel wanted to do was to hide his losses, and if he had recovered from them, nobody would have heard of him. And it is quite possible that since Kerviel does do back-office work, he could have taken positions and verified them himself, for his own orders. That is believable if Kerviel were known to be either a financial or a computing whizkid, neither of which seems to fit his profile. So, it is very likely that he had at least one accomplice to help him along — which contradicts SG’s claim that he was supposedly working all alone.

Now, I’ve read another theory which seems a lot more interesting. SG probably has more losses than it lets up, and what better way to get it all written up than to find a fall guy and blame it on him? Once you do this, you can simply ask for an increase in capital and you are suddenly a very attractive buy-out/merger target.

Besides, who cares about accountability when you can have other banks pull you out in the spirit of camaraderie, right?

To quote the poster Rocket –

Sink the damn bank. We’ll find a fall guy and then call for a capital increase and now the bank becomes even more attractive to French banks because of it’s low price. Thus you create a monster like BNP-SOCGEN and France conquers the banking world with another giant.

SOCGEN didn’t need to increase their capital. They could have absorbed the loss in 2 years with the profits they make, so something is rotten in Paris. This is unheard of a company increasing their capital 5 minutes after they discover a “fraud”

This way. French banks keep one of their own and another French giant is artificially created “de toute piece”

In the past France manipulated the free market and competition through subsidies and Monopolies today it is through stinking financial “montages” “Liberation de la croissance” will be reduced to increasing the number of taxis. It sounds so phony. The good ol’ boys are all in it together.

I now understand why the French are nostalgic for Marxism with the kind of gutter capitalism they practice.

These guys make Nick Leeson look like an amateur.

A quick look at the market the past few days would suggest that the banks and other financial institutions are having a particularly bad time. Most of it is the remnant effect of the sub-prime mortgage tomfoolery that everybody happily part-took in, but the other half is the serious credit crunch that’s been going on in the market.

And of course, a lot of this originated from the fact that these guys decided to sell asset-backed securities when their very assets were in question. So, our beloved (I use that term very loosely, of course) treasury department decides that that is not a good thing.

What do these guys do? Citi, JP Morgan Chase and Bank of America decide to come together and build a $100 billion Structured Investment Vehicle backed by - get this - more asset backed commercial paper. Heh.

Quite aptly, the folks at Dealbreaker have termed this “master” SIV as The Entity.