Central Bankers: The REAL Rogue Traders

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Frankie looked up at the judge
Judge, what will be my fine?
And the judge looked down at Frankie…
Girl, you got 99

– Frankie and Johnny

We feel sorry for Jerome Kerviel. Such a good-looking young man. With such a promising future. He was the trader with Société Générale who lost 4.9 billion euros in unauthorized trading.

Now, the poor fellow has faced the music. Trouble was, it wasn’t a tune he wanted to hear. And it seemed a little inappropriate to the occasion to us too. More below…

The news yesterday was mixed. Unemployment increased in September. The dollar and US bond yields hit new lows. And China said that trying to force it to revalue its currency would be a “disaster for the world.”

Hmmm…

Stocks rose 22 points on the Dow. Gold went up another $7.

Gold must be ready for a correction. Or else we really have reached the final stage…the runaway stage in the great bull market.

Back to Kerviel…

Kerviel drew a five-year sentence (two years suspended.) Plus, he’s supposed to repay 4.9 billion euros…

“By his deliberate actions, he put in peril the existence of the bank that employed 140,000 people, of which he was a part and whose future was threatened,” said the judge.

Well, we’re sure he didn’t do it intentionally. We mean, he didn’t intend to bring down the bank.

Besides, a lot of other people made authorized trades that were much bigger…which also put their banks in jeopardy. In fact, some of the CEOs of the world’s largest banks also put their institutions in harm’s way. And then, when the banks ran into the ditch, these guys didn’t get five years and a $7 billion fine. Instead, they got a $50 million bonus!

Kerviel recalled a card trick at a corporate party:

“Ladies and gentlemen, it’s up to you and our clients to find the margin. It has disappeared. Where’s it gone? Not here. Not there. Aha! Here it is, in my pocket!”

It didn’t go into Kerviel’s pocket. He’s penniless. The fine is about $6.7 billion. The man is said to earn about $3,000 a month. Talk about debt repayment! Let’s see, if he saves half his money each month. And he puts it all to paying off his debt to Société Générale… that’s $36,000 per year.

Hmm… If the poor man lives for 200,000 years…he’ll still be paying.

But wait. Suppose this quantitative easing thing takes off….

Yes, dear reader, central bankers are probably the biggest rogue traders of all. Remember Alan Greenspan? He has an opinion in The Financial Times today. We read it twice. Neither time did we discover anything new. He says the problem is fear. Until the fear diminishes…don’t expect businesses to start many new projects or hire many new employees. Thanks a lot for that insight, Alan.

Alan Greenspan is probably more to blame than any other human being for today’s financial crisis. He made a huge bet and put the whole world economy at risk. He bet that he knew better than the market. He put the Fed’s key lending rate below the rate of consumer price inflation…and left it there for four years. Over $12 trillion was lost – in America alone. Where’s the jail cell waiting for him? Where’s the $12 trillion fine?

And now central bankers are betting big again…BIG…and they risk not only putting the 140,000 employees of Société Générale out of work…but hundreds of millions of other people all over the world.

Central bankers are betting that they can add billions in QE money to the world’s money supply, without causing a calamity. Maybe they can. Maybe they can’t. It’s never been done before.

But every previous experiment with paper money has ended in disaster. Paper money never survived an entire credit cycle. When credit was expanding, people were happy to take the paper. When it shrank, they became fearful of the paper and wanted something more substantial. Paper money always ends up worthless.

Kerviel’s bets went well as long as credit was expanding. He was up more than $1 billion at one point. Then, when the markets began going down, so did his gambles.

Will it be any different for the central banks? Will their bets go bad too – perhaps in a spectacular blow-off in which the dollar itself becomes almost worthless. Remember, if the dollar loses just the equivalent of 5% of its 1900 value – there’s nothing left. It will be completely worthless.

Could it happen? Central bankers risk a full-blown currency calamity, worldwide, with full knowledge aforethought… This is premeditated currency assassination, in other words.

Where’s the jail cell waiting for Bernanke? Who’s going to fine him $10 trillion? How’s he going to pay?

So cheer up, Jerome. You might be able to pay your debt to society with a postage stamp… We have in our wallet a 10 trillion dollar note from Zimbabwe. Why not a 10 trillion dollar note from the US? We’re not predicting it…we’re just trying to keep the young man’s hopes up. And you never know…

And more thoughts…

Amid the flotsam and jetsam when Lehman went down was a copy of The Decline & Fall of the Roman Empire by Edward Gibbon. The company must have had it in its library.

We wonder how many Lehman employees read it. And we wonder if Lehman could have saved itself if more of them had. If anything was too big, too successful, too long-lived to fail it was Rome. And yet, down it went.

How many of the hotshots at Lehman Bros. suspected…for just one minute…that the Masters of the Universe might someday become its slaves and bootblacks?

*** Yesterday, we went for a drink at the Café Marly at the Louvre. A very nice place to meet someone after work. You sit in the arcades…looking at the glass pyramid in the center.

According to our sources, the Louvre has been targeted by terrorists. They figure they could get a lot of press if they could blow it up and take out some tourists too.

Looking at it as a casual reader of the newspaper, it appears to us that terrorists’ damage could be reduced by forceful and determined action on the part of bystanders. Rather than lie down and let yourself get shot, for example, it might be better to mount a counter-attack.

We imagined how we would leap over the ramparts of the Café Marly onto the unsuspecting terrorists below…disarm them…and turn their guns on them. After our recent automatic weapons training by the Chinese army we felt fully qualified to take on a few terrorists.

Fortunately, while we were engaged in this sort of daydreaming, the threat passed. Well-armed security forces took up their positions. No terrorists appeared.

Regards,

Bill Bonner,
for The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
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13 Comments on "Central Bankers: The REAL Rogue Traders"

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Peter Galloway
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Not a comment but a question.

Could you expand on or point me to further reading for your comment :-

“When credit was expanding, people were happy to take the paper. When it shrank, they became fearful of the paper and wanted something more substantial.”

I don’t dispute it, I just don’t understand it – which annoys me.

Great article. Great newsletter.

Peter

peterg
Guest

here’s a plug for a plug in the SMH for the Hayek school, comments are still open.
http://www.smh.com.au/opinion/politics/why-world-must-take-interest-in-our-boom-20101010-16dwh.html

Biker
Guest

Great link, with some very intelligent commentary from opposing sides… .

Stillgotshoeson
Guest

Another from the SMH

http://www.smh.com.au/business/firsthome-buyers-loans-share-shrinks-to-sixyear-low-20101011-16ew2.html#poll

End piece.. Flat For The Long Haul I tend to agree with, China being the elephant in the room.

peterg
Guest
Pakistan and India being the leopard under the couch. something calamitous like a ‘little’ nuclear exchange will make this country look like a safe haven (and dare I say, a major false flag operation – I wouldnt put it past ‘them’). Longer term, social disruption from climate change, such as millions of bangladeshies flooded out. Maybe economic refugees from the USA (“they wont let us build a mosque”). all these things going bad ‘over there’ can make here look like good value housing wise , which it certainly isnt when looking at the productive value of the housing over basic… Read more »
Biker
Guest
But the Aussie psyche is an interesting thing, peterg. One of our most amusing experiences, building four houses in 2008, was the reaction of realtors evaluating the rental potential of each. Their reaction to the first three of them was fairly cool. Nice homes, up to $400pw, but they were built ‘longways’ down the blocks, presenting modest front elevations. Seeing the fourth house, built across the (same sized) block, where a long elevation was far more aesthetic, the three agents were ecstatic. “Wow, street cred!~” cried an agent. The upshot was that essentially the same house, on the same sized… Read more »
Biker
Guest
But the Aussie psyche is an interesting thing, peterg. One of our most amusing experiences, building four houses in 2008, was the reaction of realtors evaluating the rental potential of each. Their reaction to the first three of them was fairly cool. Nice homes, up to $400pw, but they were built ‘longways’ down the blocks, presenting modest front elevations. Seeing the fourth house, built across the (same sized) block, where a long elevation was far more aesthetic, the three agents were ecstatic. “Wow, street cred!~” cried an agent. The upshot was that essentially the same house, on the same sized… Read more »
Biker
Guest

Jeez… a double post. Apologies! Once was enough… . :)

Gerry
Guest

Whenever I periodically visit this site it is immediately apparent that the biker is still travelling and hogging the super highway riding three abreast with a few other roadhoggers whilst making a lot of noise and blowing out plenty of smoke…… but two posts…Way too much spare time biker..anyway best wishes for perseverence.

peterg
Guest
maybe the DRA readers should have to click on “comments” before being tempted to read them, or not. It seems to bother some. too busy, too distractable. disappointed at not being given a gold plated tip to make some quick money. It seems to me that more consideration by the economic elites to the ‘society’ thing, and (yes biker, Psychology) would make for a better, more procutive, ergo profitable, world. Such fuzzy things certainly affect the $conomy. Else what would we read here? Gold up 5%, silver down 3%, inflation 2.5%, thats all folks, the end. dont forget, comments are… Read more »
Biker
Guest

Man with an expensive new car, peterg!~ :D

Ned S
Guest

Maybe DRA can put some sort of ‘Remove Crap’ type filtering button on the comments that Gerry can customize to specifically remove Biker and Ned initiated comments? :)

And NV could customize it so that if the comment doesn’t include all of the words ‘baby + boomer + hate’ it doesn’t pop up and annoy him. Lots of interesting possibilities. ;)

Biker
Guest

Enjoying the descriptors, Ned!~ :D

wpDiscuz
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