The Chief Corporate Counsellor

A rogue’s gallery

As the plot continues to thicken regarding the rogue trader at Société Générale, I am beginning to wonder which of the two are really the rogue – The bank management or the person.

When the bank learnt of the activities of Jérôme Kerviel, they were not sure of how exposed he had made the bank; it would now appear the exposure exceeded the market capitalization of the bank by about $21 bn.

At they time they began to unwind the deals, the losses stood at about $2.4 bn and rising to about $7.4 bn after the bank had covered the exposure.

In the time between learning of this “fraud” and telling the authorities about it, the bank had indulged in some serious self-preservation activities that we might have to deem criminal in the long run.

Market meltdown

So, last Monday, they flooded the market with these suspect deals and sold off all these positions – buyers not being aware of why the market was engaged in such frenzy, it is possible that the bank might have tried to mask where the trades were coming from to avoid the suspicious of more savvy marketers.

Beyond that, many might say it is coincidental but is not contrived to suggest this selloff prompted the US Federal Reserve to knock off 75 basis points from the baseline interest rates to avert a market disaster.

The acts of the bank could be analogous to walking away from scene of an accident or moving the body and furniture around at a murder scene before calling the police – the former being criminal and the latter being highly suspicious as to suggest criminality.

But it meant the bank was saved because the collapse of the fifth largest bank in Europe would have sent the banking world and the markets to the middle of Armageddon. The ends have in some way justified the means, but the legality of it all must be investigated.

Mere mortals make businesses

Now, back to the person, flesh and blood, like you and me, and subject to the same kinds of passions experienced in our basic humanity.

This young man at 31 suffered both the death of his father and the breakdown of his marriage more or less at the same time, sometime last year.

So, he would have been suffering grief, sadness and a sense of failure, all these weighing down on his emotions as he tried to take his mind off the matters at home and bury himself in his work as we all seem to do.

I would also suspect that working in a banking atmosphere; everyone is sapped of every ounce of humanity to become achievement automatons, nobody cares if you have problems at home or need a break to recover – you are a lesser person for allowing yourself to be human.

This is the kind of work environment I hear is pervading the banking industry in Nigeria, everyone puts in the longest hours possible that they have no time for anything else but in the service of the bank because they are paid to give up their humanity for the accumulation of accolades and great profits for the bank. This is both cultish and a kind of slavery for the want of another description.

Was Société Générale not named the equity-derivatives house of the year 2007 by the Banker magazine, whilst all this was going on? [Economist]

Martingale instincts

The positions that the young man took in trying to recover his losses probably involved the popular 18^th Century France Martingale betting system – it involves a gambler doubling his stake after every loss such that any consequent win would recover the loss and a profit equivalent to the original stake.

The probability and mathematical analysis of this system suggests the more one is able to afford to bet, the more likely the person is expected to lose – however, human instinct might dictate otherwise and luck might just smile on that person.

Now, I would suppose every man has a Martingale instinct if you gamble on something, it takes a special kind of gambler to set a limit on what he would gamble before he walks away – with his dignity intact and his shirt still on his back.

The need for a Chief Corporate Counsellor

The loss of elements of humanity in work environments allows for things to go wrong, it is unlike the man had a mentor or confidant in whom he could confide when things were going wrong.

The emphasis on success and driving ambition is good for growing a business but every business requires human beings who are somewhere between having everything perfect in their lives and most things in disarray.

Some people whose status depends on their achievements at work might well require additional support when things go wrong in their lives and this goes beyond just having a concerned manager or company shrink.

The need for a kind of corporate confessor or counsellor, dare I say “Agony Aunt” in workplaces that tax all the elements of our humanity cannot be overestimated.

This role should not be used to assess the mental state or fitness of an employee, nor should it be part of a performance review, but it should have ways by which people with difficulties either at work or outside work can unburden themselves and become more effective and productive at work.

If there was such a person whom employees could approach in confidence appreciating their issues and concerns would be dealt with sensitively and compassionately, it could be argued companies would not end up in so much trouble.

This kind of role is very much like the role the Counselor plays in StarTrek: The Next Generation – available, approachable, wise, non-judgemental and considerably useful to the total welfare of the Enterprise crew.

Message to Jérôme Kerviel

There are still many unanswered questions, but for the young man, I hope he can begin to see beyond the maelstrom that has engulfed him. Regardless of his reckless behaviour, I believe he was let down by his management, castigated by the bank and is probably the scapegoat for what should really be punished at the board level.

Be strong, you can live through this, and don’t do anything stupid.

Interest rates: Hammer hits nail (thumb)

Seaworthy in stormy seas

One has to wonder if Central banks are so beholden to the markets that other fundamentals are ignored to our peril.

In his speech yesterday to the Institute of Directors in Bristol, Lord Mervyn King, the Governor of the Bank of England suggested that the policy framework of the Bank provides a seaworthy vessel to reach the calmer waters.

Indeed, I truly hope so, but it is one thing to have a seaworthy vessel and another to be able to weather the stormy seas – there is no doubt in anyone’s mind that the seas are hosting Force-10 gales and some vessels are out at sea sending in distress calls.

Nowhere is the distress call so evident than in the United States where the hard-graft laws of economics and monetary policy are being defied by political expediency.

Inflation still matters

To a layman like myself, I have been made to understand that the central bank lever used to control inflation is usually the interest rates, with inflation running nominally at 2.1% in the UK, 4.1% in the States, 3.1% in the Euro area and 6.9% in China [Economist] – I do not think this is the time to throw money at consumers such that they have more spending power to raise inflation even more.

This means the Bush economy stimulus package, which is to boost the American economy by 1% of GDP (about $145 billion) may not have the money in the hands of the people and businesses for at least another quarter and is probably a little too late whilst it could get stunted through the legislative process.

No one can say that this move is the right one to take until we see the results at the end of the implementation - it is a gamble as good as the Iraqi surge and George W. Bush is one gambler if you ever saw one.

Interest rate panic

Since as it appears, the interest rate mechanism is very much the hammer by which every economic problem nail is hit; but which nail should be hit when inflation is soaring and markets are in free-fall turmoil?

Time will tell if the benchmark interest rate cut by 75 basis points by Ben Bernanke of the United States Federal Reserve yesterday morning before the markets opened was the right thing to do.

I am not convinced by that move and it looks like panic or as the Economist opines “Desperate Measures”, methinks the hammer has hit the nail dead-centre but that nail is on the thumb.

It is really bad out there

I cannot however ignore the opinion of the likes of George Soros who suggests that the current market crisis is probably the worst in 60 years that the question about recession or no recession is leading to a point that analyst denials would have us deep in recession before we realise we are drowning.

Before I get into any analysis beyond the remit of my understanding, I would wait and see how the thumb goes black and blue after that almighty groan of excruciating pain and the mandatory dance-around.

Did I not say this thing has a long way to run? We are preparing for a long bear market and seriously rough seas. Whichever Bank Governor still has a nerve , please hold it.

Related Blogs

Dishonest lending clue to market tremors – August 2007

Baling out trust – September 2007

Local Situations in global straits - October 2007

Fixing Capitalist Errors with Socialist Favours – December 2007

Local situations in global straits

Global rates

The effects of globalisation have come to my little corner of the world. 6 years ago when I bought my place, I accepted the going fixed rate of interest on my mortgage because I felt rates would go down for the foreseeable future and they did for at least 5 years.

This November is the time for a rate reset and suddenly I wish I knew back then in 2005 that there was a possibility for a rate hike that would see one shelling out a lot more than one ever has done before – that is the credit crunch and rotten sub-prime loans in America filching my disposables. Arghhh!

Local arts

At the same time, I have attended the meeting of our house-owners association which in itself is a bureaucracy that churns out rules that makes one think it is a hostel block.

Beyond that, the entrance atrium had the Y-semaphore indicating the name of our block, but some of the residents felt it did not match up to their aspirational goals of having escaped a working-class label.

So the uppity ones banded together into an arts committee to remodel the atrium which has ended up with a dark green marble wall and plants that cannot stand the atmosphere, any wonder? – it could as well be the well-appointed entrance to a funeral home – how depressing.

Global talk

In the early times, all notices were sent out in Dutch, after a few years, we had them in English too, but imagine my surprise when the notice that ended in my mailbox also had a Japanese translation.

Translation is an inappropriate word because the English version leaves out information found in the Dutch version which states that someone on the fourteenth floor had been pouring deep-frying fat down the drains which were are all clogged up again, just over a month ago. Again? Miscreants!

All versions advise us that it is forbidden to throw fat down the drain as the native version states that translations are offered in English and Japanese to which many a nationalist might remonstrate that we all have to learn Dutch if we live in the Netherlands.

Strangely, the English version goes on the offer the tip to pour warm (not hot!) fat – in their words – in a milk carton and throw that in our communal refuse bin, nothing that the Dutch or Japanese would find useful it seems.

Local meets

A Japanese colleague at work did laugh when he read out the Japanese bit, though I thought there were a good too many pictures (kanji) for little information, I must commend the writer for bringing the Far East to the West.

I do wonder if English would now be allowed at the annual general meeting because the I last attended, my Dutch comments were applauded for their comical value than the seriousness of what I had to say – I have not be that participatory in apartment block politics just for the fact that they end up like Dutch meetings – the desire to congregate and be heard but never reach workable decisions as one stands out antagonising everything regardless of substance.