My Sunday Business Washington Post column is out. This morning, we look at the question of who the real rogue is, the eejit trader, or the bank that allows massive losses to occur?
My answer is captured in the headline: There are no rogue traders, there are only rogue banks.
Here’s an excerpt from the column:
“Thus, firms that highly leverage their capital to put it into the hands of a few thousand employee speculators have a crucial job: They must ensure that capital is being precisely and properly managed. They must make sure that risk levels are tolerable, that proper controls are in place, that their IT systems and internal technology can track what is happening, in as near to real time as possible.
This is not easy. It is a complex set of processes that requires constant vigilance. It must be reflected in the corporate culture from the top down. And it becomes more and more complex as the size of the organization grows. The assumption must be that every employee is a potential rogue trader.
Banks are supposed to have expertise in preserving capital and managing risk. If they cannot discharge those simple duties, then perhaps they should not be in the business of finance. Most of all, they should not be engaging in behavior that puts taxpayer money at risk.
Anyone who runs a shop that has a proprietary trading desk is obligated to do everything in his power to prevent that single employee from bringing down the company. It’s not too hard to see that anyone who earns a bonus by risking the firm’s capital is a potential disaster.”
I am pleased I am able to get this into a mainstream paper like the Post, especially considering who their readership is . . .
click for ginormous version of print edition
One minor correction: Somehow in the editing process, my slam on Ace Greenberg, the paperclip recycling CEO of Bear Stearns had his name changed to Hank Greenberg, the CEO of AIG. I’ll have that corrected in the online edition, but the print version is already out there.
There are no rogue traders, there are only rogue banks
Washington Post, September 25 2011