It Takes Real Skill to Lose $2 Billion

[girl gone mad]

It Takes Real Skill to Lose $2 Billion
By L. Randall Wray

http://neweconomicperspectives.blogspot.com/2011/09/it-takes-real-skill-to-lose-2-billion.html">New Economic Perspectives

Sometimes you come across a story that really warms the cockles of your heart. I am talking, of course, about the report on UBS’s star trader, Kweku M. Adoboli who lost $2 billion. He is only 31 years old. Now, what had you accomplished by the time you were 31? Mr. Adoboli had risen through the ranks to the point that he was entrusted with a trading account that let him accumulate a loss of $2 billion. Imagine this guy’s potential! Limitless opportunities await him on Wall Street—at least, once he gets out of prison. And he could open a “think tank” like Michael Milken, devoted to proving that his trades might possibly have made good if only the world had cooperated.

Look, it’s easy to make billions on Wall Street—any dopey trader can do that. You can always follow the example set by John Paulson. Approach Goldman Sachs and propose that the firm let you pick the worst possible toxic waste assets, bundle them into securities, and then Goldman sells them to its own clients. Upward of 98% of the bad assets prove to be, well, bad, and both you and Goldman make out like bandits, and the clients get screwed. Duping customers is the sure-fire investment bank way to make profits. You cannot help but funnel client’s money to traders’ bonuses. It is impossible to lose, and that is why Wall Street is doing just fine, thank you, while the global economy collapses all around us.

Mr. Adoboli presumably tired of the sur.e thing. According to reports, he was supposed to be working in exchange traded funds, matching buyers and sellers in a high volume, low risk market where risks are easily hedged. That is sort of like the investment bank equivalent of a Jimmy Stewart thrift. Obviously, no one wants to do that kind of business—earning spread money. And so investment banks have created an infinite number of schemes to dupe sellers and buyers, trading for their own account while betting against clients.

...

I hope he gets his bonuses this year. Initiative deserves reward. After all, the big banks continued to pay stupendous bonuses when the financial crisis hit, rewarding traders and CEOs for record losses. The argument, of course, was that in a time of such distress, no bank could afford to lose such highly skilled help. Where would they find replacements able to dream up losing propositions? Now, UBS will need to keep Mr. Adoboli on retainer or they’ll lose him to a competitor looking for a star with potential to lose big bucks. After a stint punching out license plates, he’ll rise to the top of some investment bank. I’ll put my money on him—as the next Bob Rubin, Lloyd Blankfein, Dick Fuld, John Thain, Hank Paulson or Joe Cassano, all richly rewarded for driving their institutions into the ground.

Read more: http://neweconomicperspectives.blogspot.com/2011/09/it-takes-real-skill-to-lose-2-billion.html

[lame54]

1. Not really...

you just load it onto a pallet and send it to Iraq

[On the Road]

2. They Used to Have a 90-90 Rule for New Day Traders

Many of them lost 90% of their money within 90 days. The market is really hard, especially for making short-term profits.