tag:blogger.com,1999:blog-8152901575140311047.post933552139952984957..comments2024-03-29T07:41:47.433-04:00Comments on Musings on Markets: Jerome Kerviel is sentenced: Ruminations on risk and trading scandalsAswath Damodaranhttp://www.blogger.com/profile/12021594649672906878noreply@blogger.comBlogger10125tag:blogger.com,1999:blog-8152901575140311047.post-36144622430599037412010-10-16T16:24:38.049-04:002010-10-16T16:24:38.049-04:00Inside Job seems to offer some anecdotal evidences...Inside Job seems to offer some anecdotal evidences to your point.<br /><br />http://www.imdb.com/video/imdb/vi751502873/<br /><br />Since the next time<br />Bestmaxbonacchihttps://www.blogger.com/profile/07891368223805516352noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-66314808098479787052010-10-14T00:59:19.413-04:002010-10-14T00:59:19.413-04:00@Prof: Maybe most traders aren't MBAs. I was n...@Prof: Maybe most traders aren't MBAs. I was not blaming business school education at all, though. I was generally pointing towards the overly competitive pressure conditions and glorified self images that lead to the belief that others have to be outperformed at any cost if you are any good. This is not limited to the financial sector, obviously, but it is much more dangerous there, from a systemic implications perspective. I have seen first hand in my organization, though we are not an investment bank, how an obsession with 'pushing the bar' can have catastrophic results.perpetual wondererhttps://www.blogger.com/profile/12795860415528166734noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-47981404706783482542010-10-13T06:56:30.068-04:002010-10-13T06:56:30.068-04:00Well said Proffessor, I would like to add one more...Well said Proffessor, I would like to add one more point. Each trader is burdened with daily revenue targets. On an avg every trader will have 10 to 12 times of his compensation as revenue target.<br /><br /> I do my bit in cautioning the small investor using my blog <br /><br />www.bewareinvestor.blogspot.comVIKRAMhttps://www.blogger.com/profile/08717526734376034995noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-79048477924694649972010-10-12T15:50:21.537-04:002010-10-12T15:50:21.537-04:00Here in France, common wisdom seems to be that Jér...Here in France, common wisdom seems to be that Jérôme Kerviel had a kind of status complex. In other words, not having the right diploma (remember that he came from the back office!), he grew resentful of traders who enjoyed a more favorable path. Hence a maybe excessive motivation to prove something … I don’t know if this story is 100% true, but if true, it might prove something against diversity: lets populate trading desk with entitled young men who have nothing to prove and whose lifestyle is already guaranteed!Zurglhttps://www.blogger.com/profile/12493228161509040290noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-6458110824030158462010-10-12T15:49:02.875-04:002010-10-12T15:49:02.875-04:00This comment has been removed by the author.Zurglhttps://www.blogger.com/profile/12493228161509040290noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-73505838314749471522010-10-11T06:27:46.301-04:002010-10-11T06:27:46.301-04:00Most traders are not MBAs. The traders at a few el...Most traders are not MBAs. The traders at a few elite investment banks may be, but even in the top investment banks, many traders made it through the ranks. So, I think it may be easy to blame a business school education for risk taking behavior, but it would be missing the target.Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-1722377667621926642010-10-10T11:15:22.757-04:002010-10-10T11:15:22.757-04:00I think in addition to factors you have identified...I think in addition to factors you have identified, there is also the ego that fancy business school grads are made to have. They are pitted against each other and at some point, playing it sane is considered humiliating. Unless you sniff out a killer deal or design a super exotic product or something of the sort, you are not worth your salt. That may have a big role in deals that don't make economic sense falling through. Don't know if this was material in the Societe Generale case, but I know it is at play somewhere. It may be a concept primarily falling in psychology, but I think it has a big role to play in behavioral finance too.perpetual wondererhttps://www.blogger.com/profile/12795860415528166734noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-11713054776705393472010-10-09T07:45:58.677-04:002010-10-09T07:45:58.677-04:00In India, some "enterpreneurs (authorised tra...In India, some "enterpreneurs (authorised traders" have rented-out/ given trading terminals to some young hot-shots "day-traders" with a daily limit and margin money; <br /><br />profits are shared/ divided on the basis of individual investments and close controls are kept on trades/ profits/ losses.<br /><br />It is a "win-win" situation, unlike developed economies where too much of trust and authority is vested in individuals with plain greed dictating decision making.doctorgeetahttps://www.blogger.com/profile/07258712947081895199noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-611247155393792522010-10-07T14:14:12.707-04:002010-10-07T14:14:12.707-04:00Prof, i think Jerome Kerviel is being made scapego...Prof, i think Jerome Kerviel is being made scapegoat. The whole story seems like a fairy tale... I totally agree with the third point of break-even effect, Nick Leeson (Rouge Trader) was also was in similar situation of covering/hiding losses ending up in blowing up the entire bank... As far as diverse trading room is concerned, trading gets more exciting with high adrenaline of young traders...Unknownhttps://www.blogger.com/profile/14483342854500766684noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-32700632766135355012010-10-07T13:29:32.281-04:002010-10-07T13:29:32.281-04:00I think rather than the behavioral factors it is t...I think rather than the behavioral factors it is the lack of adequate internal control systems as the reason. There were enough examples for us to learn from even before Jerome Kerviel of Société Générale bank. we had the case of Daiwa bank in 1995, wherein the head of securities trading was fraudulently hiding the losses. which resulted to a total loss of $1.1 Billion and also a similar debacle of The sumitomo corporation in 1996. Here too a copper trader started playing with derivatives on LME and lost, which also resulted in a accounting loss of $1.8 billion. <br /><br />Time and again these things seems to surface and for the same reason "lack of adequate internal controls".<br /><br /> The fact that the trader(at Société Générale bank) has been hiding things from the superior of this magnitude clearly indicates a lapse of internal control . Which the bank indirectly seems to admit in court. So are there any even more bigger problems or losses yet to unlock at Société Générale ??<br /><br />Fixing the internal control systems is the need of the hour. <br /><br />Traders have different psychologies. so i don't think there can be one point or two point solution to behavioral issues. And they are never constant but change along with time. Fixing this through addressing behavioral issues might be costly as well. <br /><br />The better way is to put a control system in place, start monitoring and testing the system regularly. so next time nothing goes undetected and unreported. Even a risk management system fails in the absence of a internal control system. <br /><br />so which one do you think is the better way to fix these type of problems? addressing the behavioral issues ? or rather putting control system in place?funindrahttps://www.blogger.com/profile/09828878793960168873noreply@blogger.com