Thursday, January 24, 2008

Financial Market News - The Crack Cocaine Of The Day

I know I said I wasn't going to write about the markets. But. I. Just. Can't. Help. Myself. . . . Just. A. Little. More. Won't. Hurt. Me.

From comes news that both the Nikkei and European markets managed relatively modest gains (although bigger than the New York exchanges, which tells me they are acting no more rationally today than they were last week when they tried to sell their grandmother's estates for five cents on the dollar). The "panic" phase, I do believe, is over. Besides the federal funds rate cut, there is also the prospect of a real stimulus package coming through Congress (I love the fact that everyone noted, without a single comment, the lack of confidence in Bush's statements about tax cuts; the markets wanted a menu, and he was giving them a diet plan). I do not like the whole "rebate" thing - it smacks of pandering, election-year politics of the worst sort, mailing checks to people. It might be nice to readjust the tax code, reinvigorate the EITC, and perhaps even move to eliminate the payroll (withholding) tax - that would give people money without the unseemliness of mailing checks out.

One story I found just fascinating. The second largest bank in France is reporting a 4.9 billion Euro loss ($7.1 billion), which considering the recent losses in banks around the world that were foolish enough to try and get a piece of the near-criminal, para-fraudulent sub-prime lending market, should come as no surprise. What is a surprise, however, is how they are reporting this loss.
Societe Generale SA said unauthorized bets on stock index futures by an unidentified employee caused a 4.9 billion-euro ($7.2 billion) trading loss, the largest in European banking history.

Now, the story does add in, as an afterthought, the role of the credit crunch, in the losses. But . . .
An offer by Chairman Daniel Bouton to resign after the trades were discovered this past weekend was refused by Societe Generale's board, the bank said.

So, the Chair of the Board offered to fall on his sword in the face of the discovery of the "trades", and was refused. How noble of the chair, and how charitable of the board.

Something tells me this was just, a bit, a tad, a smidge, orchestrated. The story, as fleshed out, makes no more sense, indeed quite a bit less.
Four to five people will be fired as a result of the loss, Mustier told reporters at a press conference in Paris. The trader's manager Luc Francois, the head of equity markets, is among those who will lose his job, said spokesman Hugues Le Bret.

``The transactions that were built on the fraud were simple, positions linked to rising stock markets, but they were hidden through extremely sophisticated and varied techniques,'' Bouton, 67, said in a letter posted on the bank's Web site.

The trader didn't enrich himself from the fraudulent trades, which began in early 2007, and his motivations are unclear, Bouton said at a press conference. The employee cooperated with the bank.

So, they were . . . acting as traders, not enriching themselves, looking for higher-than-average returns for the portfolios they managed, and they are losing their jobs? Can anyone say "scapegoat"?

I think Bank of America, Wachovia, and even Goldman, Sachs should do this same thing - fire a few high-end risk-taking traders, insist they only discovered the "shenanigans" because the trades were hidden behind the complexity of investment bank accounting, and move forward with confidence now that the real criminals and miscreants behind the current losses have been exposed and tossed aside.

A novel strategy.

Virtual Tin Cup

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