How I Took Down the World Ecomony, by J. Kerviel
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By now, most folks have heard about how a 31-year-old trader named Jérôme Kerviel caused about $7.2 billion in losses for his employer, the giant French bank, Société Générale ("SG").
But here's the (rumored) back story, circulating widely among financial types:
Over the weekend, SG realized the scope of the losses, which were in the range of a couple billion US dollars.
SG then supposedly decided to unload everything on Monday, dumping a giant amount securities that had been purchased by Mr. Kerviel (perhaps bewteen 50 and 100 billion dollars worth) on the European markets.
The plummeting European markets caused the SG loss to increase from around $2 billion to $7.2 billion on Monday, as SG kept selling into a reeling market. SG denies a fair amount of this (not the fact that they had a rogue trader but that they were massively dumping securities on Monday), but many Wall Street types are not buying the denials.
The alleged dumping, coupled with recession fears, drove world stock markets into a nosedive that led many people think on Monday night that the Dow would go down by 600 to 1000 points on Tuesday. The Fed, not wanting to see that, reacted hastily by enacting an unprecedented intra-meeting rate cut of 75 basis points, which by all accounts, stopped the Dow from a true free-fall on Tuesday.
No one infomed the Fed that the Eurpoean markets may have been driven mostly by the SG response to its rogue trader; the Fed just thought the world's stock markets were in meltdown, so they did the knee-jerk thing and slashed rates.
And note, the Europeans did not slash their interest rates, probably because they were informed in advance of the SG moves.
Who knows what the "real truth" is but it wouldn't surprise me a bit if most of the Monday meltdowns were driven by nervous traders reacting to the SG dumping, but of course not knowing that it was SG or that it was in response to a rogue trader. This probably created a market-wide cascades of selling...which snowballed when more and more people started selling into a panic. The total market losses were in the trillions on that day.
But here's the (rumored) back story, circulating widely among financial types:
Over the weekend, SG realized the scope of the losses, which were in the range of a couple billion US dollars.
SG then supposedly decided to unload everything on Monday, dumping a giant amount securities that had been purchased by Mr. Kerviel (perhaps bewteen 50 and 100 billion dollars worth) on the European markets.
The plummeting European markets caused the SG loss to increase from around $2 billion to $7.2 billion on Monday, as SG kept selling into a reeling market. SG denies a fair amount of this (not the fact that they had a rogue trader but that they were massively dumping securities on Monday), but many Wall Street types are not buying the denials.
The alleged dumping, coupled with recession fears, drove world stock markets into a nosedive that led many people think on Monday night that the Dow would go down by 600 to 1000 points on Tuesday. The Fed, not wanting to see that, reacted hastily by enacting an unprecedented intra-meeting rate cut of 75 basis points, which by all accounts, stopped the Dow from a true free-fall on Tuesday.
No one infomed the Fed that the Eurpoean markets may have been driven mostly by the SG response to its rogue trader; the Fed just thought the world's stock markets were in meltdown, so they did the knee-jerk thing and slashed rates.
And note, the Europeans did not slash their interest rates, probably because they were informed in advance of the SG moves.
Who knows what the "real truth" is but it wouldn't surprise me a bit if most of the Monday meltdowns were driven by nervous traders reacting to the SG dumping, but of course not knowing that it was SG or that it was in response to a rogue trader. This probably created a market-wide cascades of selling...which snowballed when more and more people started selling into a panic. The total market losses were in the trillions on that day.
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