Matt Taibbi talks to David Shushter about the latest banking scandal.
Swiss financial services company UBS has admitted that a “rogue” trader has run up a loss of $2 billion dollars in unauthorized risky trades. The 31 year old trader Kweku Adoboli who worked in the bank’s London exchange as director of the now ironically named Global Synthetic Equities Trading team, was arrested yesterday morning at his apartment.
It seems Adoboli has since retained the law firm of Kingsley Napley, which previously advised Nick Leeson, the hot shot derivatives broker whose fraudulent, unauthorized speculative trading caused the collapse of Barings Bank in the 90’s.
Taibbi takes issue with the characterization of a “rogue trader” as a reason for this latest crisis, arguing that it’s indicative of a systemic problem. According to Taibbi, “`rogue traders’ are treated like bad accidents… But rogue companies are protected at every level of the regulatory structure and continually empowered by deregulatory legislation giving them access to our bank accounts.”
The root of the problem, he explains in Rolling Stone, is that investment banker’s brains are not wired for dull commercial bank business of taking consumer deposits and making conservative investments.
In fact, investment bankers by nature have huge appetites for risk, and most of them take pride in being able to sleep at night even when their bets are going the wrong way. If you’re not a person who can doze through a two-hour foot massage while your client (which might be your own bank) is losing ten thousand dollars a minute on some exotic trade you’ve cooked up, then you won’t make it on today’s Wall Street.
At one time commercial banks and investment banks had to remain separate entities as mandated by the Glass-Steagall Act of 1933. Today, however, because of Gramm-Leach-Bliley Act of 1998 they can be combined. In Taibbi’s view, this marriage of investment banks and commercial banks has proven to be nothing short of disastrous.
“The influx of i-banking types into the once-boring worlds of commercial bank accounts, home mortgages, and consumer credit has helped turn every part of the financial universe into a casino,” he writes.
Red Tory v.3.0.3 
It’s only going rogue when they lose money…
Precisely.
I am really at a lost as to what intrinsic hard value things like Hedge Funds provide. Not to be trite, but it is merely gambling.
Effort used to be put in the manufacture of things that humanity needed or wanted; now firms exist solely for the prupose of making money from money. That people defend this hyper-usury is beyond me.
I do believe that I am the last true Capitalist left. The rest of you have no idea of the moral underpinnings of Smith’s analysis. There was a moral underpinning to it all. Adam Smith would be rightly appalled by all of this.
ATY: I think that’s an overly broad generalization (there is still plenty of manufacturing going on across a diverse range of areas, but no where near as much as in the past – at least not in most Western countries), but there’s no doubt that the financial sector today constitutes a vastly disproportionate part of the economy and that much of its activity contributes nothing of real value.
As for being the “last true Capitalist left”… I think not. You are however certainly one of a relatively small group of people to appreciate the “moral sentiments” which guided Adam Smith.
Hyperbole … to make a point.