Not Being Oswald Gruber

22 September 2011

Some days it’s enough to just be thankful for who we are, and who we aren’t. I’m glad today that I’m me and not Oswald, the CEO of UBS, on whose watch a rookie rogue trader managed to lose $2.3 billion through taking unhedged (well, he “fake hedged” by reporting fictitious trades to offset his actual trades)bets on some exotic things called “Synthetic Exchange Trade Funds”, an instrument concocted by the same people who invented Black Jack, Craps and Roulette tables. Oswald, who made a Cheneyesque return from retirement to save UBS, “saved” it in much the way Cheney “saved” America, by bringing it closer to the brink of destruction. It will take a lot of boring commercial loans and credit card transactions for the bank to make up that kind of money.

The scandal comes at an inconvenient time for those who argue that banks should still be allowed to gamble with the depositors money in order to remain profitable. Paul Volker, former Federal Reserve Chief (and an interesting juxtaposition with Alan “why should we regulate derivatives?” Greenspan) thought he had convinced Congress to restore the “firewall” between regular banking and investment banking (gambling), but I suspect someone stuffed a lot of money in the pockets of certain Congressmen to make sure that Volker’s initiative was elegantly gutted before it reached the floor of the World’s Most Corrupt Deliberative Body.

It’s quite amazing, really, that after the collapse of the Global Financial System we are still having this discusssion. Should banks that take the public’s deposits be limited to relending them to make money, or should they be allowed to put this money on black or 00 and spin the wheel? The main reasons the big banks roared back to profitability after the crash is that they made fortunes on the trading floor. But as Oswald discovered, if you hire people who like to gamble with OPM (Other People’s Money) at least one of them is going to turn out to be an addict and take the whole house down (Barings, Soc Gen, Allied Irish — you get the idea).

I remember when I was fresh out of grad school, walking the streets of Manhattan, looking for a job. I stopped in at Continental Grain, where I was interviewed by a chain smoking commodities trader. “It’s basically a con,” he told me. “We trick the farmers to take the other side of our transactions, and make money when they bet wrong on the price movements.”

That was all I needed to hear. I walked out.

Rupert Scofield


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