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Computer Genius on Financial Rampage- by Greg Strid

It appears as if a 31-year-old rogue computer genius
named Jerome Kerveil is responsible for the staggering
$7.14 billion loss suffered by France’s once venerable
banking behemoth Societe Generale. Sheepish company
officials publicly disclosed the loss just this week to the
horror and dismay of shareholders and politicians.

Mr. Kerveil is thought to have circumvented the stately
bank’s less than impressive security and risk management
programs in order to place massive bets on the direction of
European equity markets. The disclosure of this “fraud”
came just as global stock indices were being pummeled by
the realization that the recession brewing in America is likely
to affect economies the world over.

Panicked bank officials were forced to unwind positions at the
worst possible time. As markets tanked and losses mounted,
itchy fingers of accusation began to fly.

Kerveil, according to Societe Generale, was a “computer genius”
bent on bringing the bank down with his passion for reckless
trading. This explanation does not hold up to even the faintest
of scrutiny. By most accounts, the culprit was described as less
than unique, hard working yet certainly not capable of world
domination through complex financial maneuvers.

The question that should be asked is: how could one employee’s
enormous string of bad trades go unnoticed for so long? This
episode, unfortunately, is just another in a long line of banking
misdeeds and shines the spotlight on an industry in desperate
need of an overhaul. The lack of external regulatory oversight,
coupled with a lack of proper internal controls allowed financial
institutions in America and Europe to assume extreme amounts
of risk in the pursuit of wafer-thin returns.

Mr. Kerveil’s is neither a genius nor a madman. Unfortunately,
this incident only demonstrates that it is quite humanly possible
to wreak havoc within a system that is poorly suited to regulate
itself.

©Greg Strid 2008

© 2008 Splendid Marbles.