One of the aspects of the UBS rogue trader affair that seems to have escaped much comment so far is the role that organisational culture can play in high profile trading scandals. The common thread that runs through the Leeson, Soc Gen and UBS disasters is not just that management supervision and risk controls failed to stop the disastrous losses of their delinquent traders. An equal failure was that none of the traders felt able to confess to what they were doing in time to stop the losses escalating from an embarrassment to out and out disaster.
Author: Jonathan Davis
Author, columnist and investment professional.
Economics Fails to Resolve Exceptions to the Rule
As the financial crisis continues to evolve, the Queen’s question at the London School of Economics – why have academic economists so little to contribute to predicting the course of events – continues to be all too pertinent. Robert Lucas, professor of economics at the University of Chicago and Nobel Prize winner for his seminal contributions to macroeconomics, proffered an answer in 2009.
Curious Episodes That Bode Who Knows What
The volatility we have seen in financial markets since the middle of July will go down, I suspect, as a good case study in future years for connoisseurs of curious episodes in market history. While years of experience caution us all against describing the market as having lost touch with reality, the past six weeks may come to merit just such a description. Salute the wisdom of crowds, by all means, but wisdom is precisely what seemed to go walkabout as soon as the big beasts in the investment community and government packed their bags and went (or tried to go) on holiday in mid-July.
Retreat of Hedge Funds No Bad Thing
The news that George Soros is throwing the last outside investors out of his Quantum fund and keeping it solely as a family office from now on provides a useful reminder that hedge funds are facing increasing obstacles, of which the regulatory requirements which prompted this move are just one. If they go back to being what they once were, namely private pools of capital with a finite number of owners and fend-for-yourself regulation, the investment world would, in my view, be no worse a place as a result.
American Lessons in How to Run a Single Currency
In the 1990s, when European monetary union was a plan but not a reality, I would explain to students that the effect was to replace currency risk by credit risk. With exchange rates free to float, loose monetary and fiscal policies would lead sooner or later to a fall in the exchange rate. That expectation implied higher interest rates. Currency markets would limit the scope for bad economic policies.
Investment World Needs More Forensic Analysts
“To the best of our ability and belief”, runs the standard legal disclaimer on the research report I have just been reading, “all information contained herein is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable”. Such legalese is now familiar to every investor and is read (or rather ignored) many thousands of times every day. Yet sometimes, as on this occasion, it carries an extra resonance because of the explosive nature of the material to which it relates.
Jonathan Davis 