For everything else....

A BUGATTI VEYRON:
£899,995


BUYING AMBAC AND MBIA AT CURRENT MARKET PRICES:

$3 BILLION

CREATING A GOVERNMENT ENTITY TO BUY UP DODGY MORTGAGE DEBT:

$10 - $20 BILLION (YEAH, RIGHT)

BAILING OUT AN OVER-LEVERED MORTGAGE LENDER:


£25 - £55 BILLION

WRITING DOWN YOUR HOLDINGS OF STRUCTURED CREDIT TO PROPER VALUE:
$120 BILLION (AND COUNTING)

BEING LONG GAMMA THIS WEEK:

PRICELESS

THERE ARE SOME THINGS THAT MONEY (ALMOST) CAN'T BUY. FOR EVERYTHING ELSE....



THERE'S BEN BERNANKE!

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22 comments

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vlade
admin
January 24, 2008 at 8:50 AM ×

priceless!

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mong
admin
January 24, 2008 at 9:18 AM ×

Tumbled over your blog last night: is this daily routine? Wow! Congrats to the new car (I wanna have one too)

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January 24, 2008 at 10:15 AM ×

AHAHAH you're great!!!
Ben is happy to use seigniorage to the limit.. until something will broke (dollar or yields or both??).
A lot of compliments to the BIG trader of SG, just to remember that it's easy to lose money also without structured credit finance!!!
Fabio

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caprica
admin
January 24, 2008 at 10:41 AM ×

LOL, I gotta get me one of them Ben Bernanke Master Cards. It is the only card where they keep on lowering interest rates and if you hit your limit, no problems, they can always just print more money. I wonder if I can get a platinum one?

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CV
admin
January 24, 2008 at 12:48 PM ×

Reiterating the praises above ....

And then to another question. I may be naive, young etc but how in the &/%!&#/& can Société Générale mess up like that?

I mean, how can this happen?

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Anonymous
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January 24, 2008 at 1:02 PM ×

Punting European index futures: $7.3bn

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January 24, 2008 at 1:34 PM ×

I hate to have to point it out, but VW sure copped a lot of design licks for the nose of that car from the, gasp, SEAT Leon.

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OldVet
admin
January 24, 2008 at 2:00 PM ×

Lost 2 feet of height in Up elevator yesterday, that was some short squeeze. Will have to send something sharply worded to Sen Dodd, to thank him. And a rubber check donation.

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dd
admin
January 24, 2008 at 2:11 PM ×

Thank you for a genuine belly laugh in these absurd times.

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vlade
admin
January 24, 2008 at 3:00 PM ×

I'm perplexed.
How could someone loose 5bnEUR on an exchange traded instrument and no-one would notice????
Surely, the margin call would had to be humongous and someone would investigate? If he was running it for two years, assuming he lost money 220 days a year, he would have to loose (in realized pnl) 11+mil a day. Surely someone in the back office would notice?????.
Surely you must reconcile your overnight position with your clearer every day?
Give that they say “The decision was made to unwind this position this position was taken because it was impossible for the bank to maintain,” the positions had to be real, and not just dummies in systems...

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vlade
admin
January 24, 2008 at 3:02 PM ×

Also, for (more) laughs - scroll down on this link for equity derivative house of the year:

http://www.risk.net/public/showPage.html?page=685486

Date on this is Jan 2008

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Anonymous
admin
January 24, 2008 at 3:20 PM ×

Macroman brilliant --

I too would be interested on your take on soc gen

bsetser

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January 24, 2008 at 3:37 PM ×

Order flows are too big and complicated to be item-level audited. Bank so big, one side doesn't know what the other is doing.

The guy knew the risk reporting procedures, having worked that side of the book.

Guesses: someone forgot to delete his password, he had a friend (or girlfriend) over there still that helped him cover up, or he used his knowledge of the procedures to mask it.

Barings was brought down by one dude. Remember that?

Now, to what extent was the selloff on Mon-Wed caused by SoGen getting neutral before the press release? To what extent was the Fed influenced by thinking the selloff was broad-based and due to concerns about the overall economy and market, as opposed to one firm liquidating 20-30% of the open interest in few day's time?

Anyone besides me stay in their positions throughout the whole shebang? LOL!

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throw
admin
January 24, 2008 at 4:28 PM ×

LMAO dude.

awesome.

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vlade
admin
January 24, 2008 at 4:56 PM ×

Bill:
Exchange trades are usually (at least in places I worked) per-item audited daily. The total position is reconciled, as is your pnl and margin call and what the clearer says.
This is (or trivially can be) a fully automated procedure.
Your product control people should watch your pnl daily, and that should be reconciled to overnight report from clearer. Unless you can mess with reco with clearer, there's not really much you can do.
You have to settle margin calls daily, which are real money. Payments (BO) must notice. Your GL would then notice too. It's real money, and it leaves real (long) trail.

So, to do it, you have to:
Fake reconcilation (pnl and trade level) with your clearer.
Fake payments to a non-exchange cpties (which is what baring's dude did).
Fake nostro/GL reconcilation.
Or coopt someone in all these areas. Again Barings dude was all three areas himself, so he could have done it.

This guy wasn't senior enough, and even with in-depth knowledge of middle office systems, unless he had someone in back office, he should have been found in a couple of days tops.

What this sounds more and more to me like is that someone, with the knowledge of the management, took a huge punt, and lost.

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Macro Man
admin
January 24, 2008 at 5:07 PM ×

Vlade and Brad,

From what I gather, this chap did have sufficient knowledge/contacts/whatever with SG's back office platform to pervert or circumvent the systems to the degree that these trades were outside the bailiwick of normal risk management.

So in mnay ways, the Leeson comparison is apt,,,as is one to "Mr. Copper" at Sumitomo a few years ago.

SG's explanation that the losses were uncovered over the weekend seems spurious, given the amount of rumour and innuendo that has dogged the name for the past few weeks.

What does seem evident, ex-post, is that they started dumping as soon as futures markets opened...not exactly the most effieicnet way to exit the position, as the chap from High Probability Trading could probably tell you.

So what does it say about the Fed that they seem to have hit the panic button just because some dipshit at a French bank has lost some money trading equities?

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vlade
admin
January 24, 2008 at 5:35 PM ×

Well, if it's really system's problem, then I think SocGen was more then negligent and anyone within five miles of this guy should be nuked.

It's only market risk (middle office) problem, but rather back office too - it's exchange traded futures, after all, so there are real money going around (margin payments), which need to be reconciled in GL.

If it's really a system problem, then I suspect SocGen will find more of this as they do a proper audit, because if you have GL and payments system where few billion EUR can go missing and you don't notice, then he's probably not the only person doing it.

Nick Leeson had the authority and the ability (directly) to use the error account in the GL, and so hide the payments. He was a chief trader as well as settling his trades.

You could do what he's alleged to do on OTC stuff, ala NAtional Australia Bank FX options debacle. Entering trades and then cancelling them before the next system managed to process them.

But that wouldn't work for exchange stuff, because there's a real money being moved - so you'd need to be able to access the GL/payments system and recos and modify those as well. You probably could have this hidden in noice for relatively small noise (say few tens of mills), but billions?

Well, we'll find more in time - he might write a book, or Holywood might make a movie..

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Anonymous
admin
January 24, 2008 at 6:31 PM ×

Word is that mortgage brokers across the US are chanting "Jerome, Jerome, Jerome" as the refi apps roll in.
Maybe "Free Jerome" shirts are next...
RJ

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Macro Man
admin
January 24, 2008 at 6:42 PM ×

A quick check on Bloomberg reveals that he spent 5 years in SocGen's middle office. Particularly amusing was the quote from the SG chap who said "it's not possible" that SG's futures selling was responsible for Monday's meltdown.

Just like "it's not possible" to lose two years' worth of earnings on one trade, eh?

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Anonymous
admin
January 24, 2008 at 7:38 PM ×

He wouldn't have had margin calls until recently, which certainly makes things easier to hide.

http://bloomberg.com/apps/news?pid=20601087&sid=a.qZ3gOMOxhE

By the end of December, he was "massively in the money," said [Philippe] Collas[, the head of asset management at the bank]. Since the beginning of the year his trades became unprofitable.

Forget that eleven million a day estimate - he had to have lost hundreds of millions of euros a day.

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Anonymous
admin
January 25, 2008 at 5:26 AM ×

what a load of crp soc gen didnt know about this...having been in derivatives (front/middle/back office) for the past 15 years it is physically impossible to hide losses this large...what the broker didnt ask for margin ? what a croc...they nearly blew up in august and have been riding it since then!leeson didnt blow up in a day and neither did this idiot...

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