The S&P500's drops 20% from its recent high, the Russell 2k is 25% of its high and, at the end of this death spiral, the selloff and rate cut are the fault of over-the-weekend selling by SocGen?!?!? Can we think back farther than 3 or 4 days?
Lets keep it focused on the trading fellas. Here's the article on the trader who gutted SocGen (from Trader Daily). *** Article Inside Wily Traderâs Socking Of SocGen On the heels of the joyous discovery that his bankâs subprime write-downs would be less than expected, Societe Generaleâs chairman finds out one lowly trader who earns less than 100,000 euros a year has soundly wiped out the bankâs annual profit by keeping two sets of books and using his intimate knowledge of the institutionâs back-office controls. (Apparently, this 31-year-old worked his way up from the administrative side of the bank.) What follows is an absurd story of how a single employee felled a Wall Street monolith, propelled by motives that remain unknown â except, we presume, to him. Societe Generale SA Chairman Daniel Bouton was preparing for a Jan. 21 press conference to announce writedowns that were less than many analysts expected, leaving the bank with pretax profit of 5.5 billion euros ($8.1 billion). Over the weekend, he learned the U.S. subprime market was the least of his problems. A rogue trader, who'd worked his way from the back office to the trading floor, had made unauthorized bets on stock index futures that would wipe out much of those profits. The news conference was postponed by three days while the bank sold the contracts as markets plunged worldwide, racking up an unprecedented 4.9 billion-euro trading loss. Speculation about losses related to the global credit crunch drove the shares down 7.3 percent during that time. ``We were hoping to greet you Monday with news of near record profits for 2007,'' Bouton said yesterday at the company's headquarters in Paris. ``Instead, we are here to tell you of this incredible loss. It's been some of the most difficult days for many of us.'' Investors were just as shocked to learn the news was far worse than they expected. The combination of the losses and writedowns depleted Societe Generale's capital, forcing it to announce plans to raise money from shareholders. ``It's unbelievable,'' said Patrizio Pazzaglia, a money manager at Bank Insinger de Beaufort NV in Rome. Societe Generale was little changed at 10:58 a.m. in Paris, after falling 4.1 percent yesterday. The stock has dropped 23 percent this year, valuing the bank at 35.3 billion euros. The trader, Jerome Kerviel, 31, built a virtual company within Societe Generale, bank officials said. He balanced each bet with a fictitious one for almost a year. On Friday, a routine check found a trade that exceeded the bank's limits. A call to the other party in the trade found the transaction didn't exist. ``He was running two books simultaneously, one real and one false,'' Bouton said at a press conference yesterday in Paris. Societe Generale yesterday filed a lawsuit against ``a 31- year-old person'' for creating fraudulent documents, using forged documents and making attacks on an automated system, said Clarisse Grillon, a spokeswoman for the Nanterre prosecutor. Kerviel drew on knowledge he acquired during six years in Societe Generale's back office, where he went to work in 2000 after completing a degree in market operations at the University of Lyon II, according to an alumni Web page. He had to breach five levels of controls to get away with his trades, Bank of France Governor Christian Noyer said at a press conference yesterday. His ``intimate and perverse'' knowledge of the bank's controls let him avoid detection, co-Chief Executive Officer Philippe Citerne told reporters. An e-mail to an address on a Facebook page listing Kerviel's name went unanswered. Kerviel moved to the bank's trading floor in 2006. The trader, who had an annual salary and bonus of less than 100,000 euros, didn't enrich himself and his motivations were unclear, Bouton said. He got tripped up when the bank boosted its controls, partly by increasing its back-office staff by 50 percent to 2,000 people in the past year.
(continued on Bloomberg) *** Trader Turns Societe Generale Report Into a Nightmare (Update1) By Alan Katz and Gregory Viscusi Jan. 25 (Bloomberg) -- Societe Generale SA Chairman Daniel Bouton was preparing for a Jan. 21 press conference to announce writedowns that were less than many analysts expected, leaving the bank with pretax profit of 5.5 billion euros ($8.1 billion). Over the weekend, he learned the U.S. subprime market was the least of his problems. A rogue trader, who'd worked his way from the back office to the trading floor, had made unauthorized bets on stock index futures that would wipe out much of those profits. The news conference was postponed by three days while the bank sold the contracts as markets plunged worldwide, racking up an unprecedented 4.9 billion-euro trading loss. Speculation about losses related to the global credit crunch drove the shares down 7.3 percent during that time. ``We were hoping to greet you Monday with news of near record profits for 2007,'' Bouton said yesterday at the company's headquarters in Paris. ``Instead, we are here to tell you of this incredible loss. It's been some of the most difficult days for many of us.'' Investors were just as shocked to learn the news was far worse than they expected. The combination of the losses and writedowns depleted Societe Generale's capital, forcing it to announce plans to raise money from shareholders. ``It's unbelievable,'' said Patrizio Pazzaglia, a money manager at Bank Insinger de Beaufort NV in Rome. Virtual Trades Societe Generale was little changed at 10:58 a.m. in Paris, after falling 4.1 percent yesterday. The stock has dropped 23 percent this year, valuing the bank at 35.3 billion euros. The trader, Jerome Kerviel, 31, built a virtual company within Societe Generale, bank officials said. He balanced each bet with a fictitious one for almost a year. On Friday, a routine check found a trade that exceeded the bank's limits. A call to the other party in the trade found the transaction didn't exist. ``He was running two books simultaneously, one real and one false,'' Bouton said at a press conference yesterday in Paris. Societe Generale yesterday filed a lawsuit against ``a 31- year-old person'' for creating fraudulent documents, using forged documents and making attacks on an automated system, said Clarisse Grillon, a spokeswoman for the Nanterre prosecutor. Intimate Knowledge Kerviel drew on knowledge he acquired during six years in Societe Generale's back office, where he went to work in 2000 after completing a degree in market operations at the University of Lyon II, according to an alumni Web page. He had to breach five levels of controls to get away with his trades, Bank of France Governor Christian Noyer said at a press conference yesterday. His ``intimate and perverse'' knowledge of the bank's controls let him avoid detection, co-Chief Executive Officer Philippe Citerne told reporters. An e-mail to an address on a Facebook page listing Kerviel's name went unanswered. Kerviel moved to the bank's trading floor in 2006. The trader, who had an annual salary and bonus of less than 100,000 euros, didn't enrich himself and his motivations were unclear, Bouton said. He got tripped up when the bank boosted its controls, partly by increasing its back-office staff by 50 percent to 2,000 people in the past year. More Than Leeson ``That's when he made his first mistake,'' said Jean-Pierre Mustier, head of investment banking at Societe Generale. ``He no longer knew the type and calendar of the controls.'' The trading loss raises questions about the bank's risk management procedures. ``I find it really improbable that this trader was not abetted by at the very least incompetence, if not assistance from others,'' said Joseph Mason, a risk-management researcher and professor of finance at Drexel University in Philadelphia. ``Ultimately, we're talking about a breakdown of fundamental operational controls.'' The losses triggered by Kerviel exceed the $6.6 billion that Amaranth Advisors LLC posted in 2006 and are more than four times the $1.4 billion of losses by Nick Leeson that brought down Barings Plc in 1995. Societe Generale's Mustier first got wind of the record trading fraud on the evening of Friday, Jan. 18. `Bad Luck' A compliance officer called to tell him that a supposed counterparty to a futures trade knew nothing of the transaction. It wasn't until late Sunday that bank officials pieced together the full extent of the fraud. Kerviel helped with the investigations throughout the weekend, Mustier said. On Sunday afternoon, Bouton called Noyer and stock market regulators to tell them the scope of what they were uncovering. The regulators agreed Societe Generale should liquidate the positions as quickly as possible and then inform the market, Bouton said. By the time European markets opened Monday morning, Asian stock indexes were down several percentage points. ``We had the bad luck that markets fell in Asia, but we had the good luck that volumes were so high so that we were able to make the trades without alerting the market,'' Bouton said. ``There was never any question of holding onto the positions hoping markets would go our way,'' he said. ``And if we'd told the world about our positions, we'd have had the whole market against us and we'd have had losses 10 times as large.''