FacebookTwitterGoogle+RedditEmail

Société Générale and the Economic Meltdown

by BINOY KAMPMARK

I don’t know the person and his motives are totally irrational.

— Daniel Bouton, chairman of Société Générale, January 24, 2008

The Americans and British will naturally point a finger with glum satisfaction: Black Monday was the work of a wily, unreliable Frenchman by the name of Jérôme Kerviel. The loss of 4.9 billion Euros by the world’s seventh largest bank, Société Générale, is still being digested by markets. It has now become the biggest fraud in financial history. Some perspective can be gathered by the fact that the same company paid roughly half that price for most of the assets in its rival, the Russian bank Rosbank, in December.

Kerviel’s costly hedging on plain vanilla futures, though spectacular, is far from unusual. ‘Rogue’ transactions dot the banking landscape, with the 1990s being memorable for several practitioners of ‘off-the-book’ activity. The last time such an event of comparable magnitude took place was 1995, when Barings Bank announced losses totalling 1.6 billion US dollars. The perpetrator then was Nick Leeson, who is now spending time in resplendent solitude as a director of an English soccer club. Barings, once a great name, is defunct, swallowed up by ING for a mere one pound.

The Japanese had several. One was Yasuo Hamanaka of Sumimoto Corporation, who had the cunning to raise the price of copper through off-the-book transactions. In a sense, the sub-prime market was the paragon example of a grand rogue scheme, one sanctioned by an evolving practice that is tilting the global economy into recession.

Such financial lunacy has all but put paid to the interventions of Federal Reserve Chairman Ben S. Bernanke earlier this week. A Federal Reserve source claimed that no one within the bank knew about SocGen’s antics till after the announcement to cut interest rates. Initially uncertain and all at sea, the Federal Reserve has taken the first dramatic moves to hoist the American economy from the brink of recession. The first was a cut of three-quarters of a percent in the official interest rate, unheard off since the early 1990s.

The next move came from the White House, an initiative to force a credit binge through tax rebates. This measure has full bi-partisan support. Populist policies encouraging consumption are reminiscent of anti-recession adverts from Australia in the early 1990s: ‘If each Australian buys one pair of locally made socks, the economy [and wool industry] will be saved.’

The gloom that has spilt over from the speculations of Kerviel has affected global leaders. The British Prime Minister Gordon Brown, who was for a time England’s answer to a now discredited Alan Greenspan, has scolded the banking system at the World Economic Forum in Davos. ‘This is a testing time for the global economy and those of us who believe in free markets, flexible economies and sustainable globalisation.’

Risks in financial markets have been under priced. The very correcting mechanism so often ignored by practitioners of neo-liberal economics has now come back with a vengeance.

SocGen has been engaging in such sheet-activity, much of it clearly off-balance. Allowing a single trader such unaccountable access was suicidal, though it assures the public in a statement that his authority was ‘limited’, and his reputation as a junior trader insignificant. The statement makes little sense, given that Kerviel’s activity in placing billions on basic derivatives must have surely caught the eye of someone.

All credit is due to Kerviel, who must have been playing with sums in the order of 30 to 40 billion. Security safeguards were deftly evaded, which says much about those who put them there in the first place. His former employer’s response was weak: he concealed the nature of earnings and losses ‘through a scheme of elaborate fictitious transactions.’

The company’s chairman and chief executive Daniel Bouton, along with deputy Philippe Citerne will forego their salary till June 30 to right the ship. They can afford to, and still believe in the magic of the market. Bouton, betraying a general ethical deficiency in banking, seems to think much like the spurned Kerviel. ‘These losses,’ claimed Bouton at a press conference, ‘could have been gains if the market had climbed on Monday, Tuesday and Wednesday.’ As a letter to the London Times on January 24 suggested, we wouldn’t let these people be dentists.

BINOY KAMPMARK was a Commonwealth Scholar at Selwyn College, Cambridge. He can be reached at: bkampmark@gmail.com

 

 

 

 

Binoy Kampmark was a Commonwealth Scholar at Selwyn College, Cambridge. He lectures at RMIT University, Melbourne. Email: bkampmark@gmail.com

More articles by:

CounterPunch Magazine

minimag-edit

bernie-the-sandernistas-cover-344x550

zen economics

Weekend Edition
February 24, 2017
Friday - Sunday
Jeffrey St. Clair
Roaming Charges: Exxon’s End Game Theory
Pierre M. Sprey - Franklin “Chuck” Spinney
Sleepwalking Into a Nuclear Arms Race with Russia
Paul Street
Liberal Hypocrisy, “Late-Shaming,” and Russia-Blaming in the Age of Trump
Ajamu Baraka
Malcolm X and Human Rights in the Time of Trumpism: Transcending the Master’s Tools
John Laforge
Did Obama Pave the Way for More Torture?
Mike Whitney
McMaster Takes Charge: Trump Relinquishes Control of Foreign Policy 
Patrick Cockburn
The Coming Decline of US and UK Power
Louisa Willcox
The Endangered Species Act: a Critical Safety Net Now Threatened by Congress and Trump
Vijay Prashad
A Foreign Policy of Cruel Populism
John Chuckman
Israel’s Terrible Problem: Two States or One?
Matthew Stevenson
The Parallax View of Donald Trump
Norman Pollack
Drumbeat of Fascism: Find, Arrest, Deport
Stan Cox
Can the Climate Survive Electoral Democracy? Maybe. Can It Survive Capitalism? No.
Ramzy Baroud
The Trump-Netanyahu Circus: Now, No One Can Save Israel from Itself
Edward Hunt
The United States of Permanent War
David Morgan
Trump and the Left: a Case of Mass Hysteria?
Pete Dolack
The Bait and Switch of Public-Private Partnerships
Mike Miller
What Kind of Movement Moment Are We In? 
Elliot Sperber
Why Resistance is Insufficient
Brian Cloughley
What are You Going to Do About Afghanistan, President Trump?
Binoy Kampmark
Warring in the Oncology Ward
Yves Engler
Remembering the Coup in Ghana
Jeremy Brecher
“Climate Kids” v. Trump: Trial of the Century Pits Trump Climate Denialism Against Right to a Climate System Capable of Sustaining Human Life”
Jonathan Taylor
Hate Trump? You Should Have Voted for Ron Paul
Franklin Lamb
Another Small Step for Syrian Refugee Children in Beirut’s “Aleppo Park”
Ron Jacobs
The Realist: Irreverence Was Their Only Sacred Cow
Andre Vltchek
Lock up England in Jail or an Insane Asylum!
Rev. William Alberts
Grandiose Marketing of Spirituality
Paul DeRienzo
Three Years Since the Kitty Litter Disaster at Waste Isolation Pilot Plant
Eric Sommer
Organize Workers Immigrant Defense Committees!
Steve Cooper
A Progressive Agenda
David Swanson
100 Years of Using War to Try to End All War
Andrew Stewart
The 4CHAN Presidency: A Media Critique of the Alt-Right
Edward Leer
Tripping USA: The Chair
Randy Shields
Tom Regan: The Life of the Animal Rights Party
Nyla Ali Khan
One Certain Effect of Instability in Kashmir is the Erosion of Freedom of Expression and Regional Integration
Rob Hager
The Only Fake News That Probably Threw the Election to Trump was not Russian 
Mike Garrity
Why Should We Pay Billionaires to Destroy Our Public Lands? 
Mark Dickman
The Prophet: Deutscher’s Trotsky
Christopher Brauchli
The Politics of the Toilet Police
Ezra Kronfeld
Joe Manchin: a Senate Republicrat to Dispute and Challenge
Clancy Sigal
The Nazis Called It a “Rafle”
Louis Proyect
Socialism Betrayed? Inside the Ukrainian Holodomor
Charles R. Larson
Review: Timothy B. Tyson’s “The Blood of Emmett Till”
David Yearsley
Founding Father of American Song
FacebookTwitterGoogle+RedditEmail