Interesting New Developments in SocGen

[Jon Callas]

<http://news.bbc.co.uk/2/hi/business/7255685.stm>

Excerpt:

    An internal investigation into billions of euros of losses at
    Societe Generale has found that controls at the French bank
    "lacked depth".

    The results of the investigation also show that rogue trades
    were first made back in 2005.

<http://news.bbc.co.uk/2/hi/business/7256102.stm>

Excerpt:

    Societe Generale made a profit in 2007 despite a trading scandal  
that
    cost the bank 4.9bn euros ($7bn; £3.7bn).

    The French bank said it made a net profit of 947m euros for the  
year,
    although this was down 82% from 2006.

I think these two things are very interesting from a viewpoint of  
security and economics. This fellow had been making unauthorized  
trades for two to three years, and when it all came tumbling down, it  
knocked off at most 82% of one year's profits. (I say at most because  
it's reasonable to think that in a year of subprime issues, they'd  
have been down 30-50%.)

Compare and contrast with Nick Leeson's sinking of Baring's, which was  
a mere $1.4bn. We can even double-ish that to say $3bn to account for  
the intervening time.

Both cases were unauthorized trades spinning out of control in  
attempts to cover small losses, but Baring's was sunk for the  
(adjusted) $3bn and SocGen merely loses 80% of one year's profits at  
$5bn.

Does this suggest that what is really needed is a way to detect losses  
that could spin out of control before they do, as opposed to direct  
security mechanisms?

	Jon

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