Nick Leeson Rogue Trader
Monday Nov 10, 2008
Aided by a some viral and bacteria treats, the little people brought home from school and nursery, I have just finished Nick Leesons's Rogue Trader. Yes I know the book has been out for years, but still worth a read if you have any interest in the financial system. It gives a people based perspective which is often missed.
Being of a positive outlook on the human condition, I am inclined to believe his assertion that he did what he did to cover up errors made by himself and others and that the cover up of the cover up snowballed and what do you know, a 600 million pound hole has appeared.
Much the same story was repeated this year at Societe Generale.
The causes appear much the same
- Traders try to trade there way out of minor losses/errors to avoid loss of face/bonus/the sack
- Front and back office under the control of 1 person
- Derivative products which are only understood at a superficial level by management at any level
- Lack of detailed real time assessment of exposure
- Lack of staff with in depth understanding of the products involved in the audit and risk management functions
Do these remind you of other recent events where lots of money was lost by banks? The main differences from a distance appear to be if an individual exceeded their authority to trade and in the Leeson case there was clear forgery and book cooking which he admits to.
Are financial derivatives now just too complex and the people who generate them too creative to be policed using approaches to risk management originally developed for traditional long stocks? I also suspect intolerance of small failures drives the wrong behaviors.
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