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How To Lose $7.2B With Just a Few Basic Skills

kdawson posted more than 6 years ago | from the l33t-skillz-not-required dept.

It's funny.  Laugh. 234

Cityslacker recommends a Register piece speculating on how a lowly trader at the French bank SocGen was able to lose billions using only Excel VB. The author freely admits that his story is not based on hard sources, but his experience in the banking industry lends plausibility.

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it must be microsofts fault! (5, Funny)

Richard.g.k (1215362) | more than 6 years ago | (#22261350)

The solution is clearly to blame microsoft for it.

Re:it must be microsofts fault! (1, Funny)

Anonymous Coward | more than 6 years ago | (#22261448)

Where did you think they get the 44.6 bilion to buy yahoo? By selling Vistas? AHHAHAHAahahah.

Re:it must be microsofts fault! (0, Offtopic)

anubi (640541) | more than 6 years ago | (#22261814)

The main one I am concerned about is finance.yahoo.com .

It still works.

I am afraid after M$ gets through with it, it won't.

I fear it will require registrations and use some copyrighted protocol - guaranteed non-interoperable by copyright and patent law. Only the latest MS product will talk to it.

I will always wonder if my financial queries are being tracked and stored in their database. I have no idea what kind of information may be exchanging behind my back.

It will be yet another goad to force one to upgrade when M$ decides they want to sell another round of OS.

Hopefully, Google will pick up the pieces.

Re:it must be microsofts fault! (0, Redundant)

Spokehedz (599285) | more than 6 years ago | (#22261892)

Because Yahoo or Google isn't doing all of these things already?

Re:it must be microsofts fault! (1)

pthor1231 (885423) | more than 6 years ago | (#22261954)

The main one I am concerned about is finance.yahoo.com .
Because Yahoo or Google isn't doing all of these things already?

Umm...

Re:it must be microsofts fault! (2, Insightful)

nullCRC (320940) | more than 6 years ago | (#22261506)

You mean Bush.

Re:it must be microsofts fault! (0, Troll)

Naughty Bob (1004174) | more than 6 years ago | (#22262780)

You mean bastard

a common preception (2, Informative)

RingDev (879105) | more than 6 years ago | (#22261896)

I worked a contract gig a few years back for a non-consumer bank. Their average transactions were on the order of tens of thousands to millions of dollars. The IT director was a lady who loathed Microsoft. Not that she ever really explained her hatred of MS, but she stuck to it. As a result, they were using Netware 3.0 for all of their networking needs. Now, that in and of itself isn't a major problem, Netware was a solid system in it's time. The problem though was that while I was working that contract the latest version of Netware had just been released, v6.0. Yup, they were using a 10 year old networking system. Not only that, but it was version 3.0, not the fully patched 3.3. The IT direct railed against MS for their security shortcomings while touting a network that was so archaic that her only security was the obscurity of her software.

-Rick

Re:a common preception (1)

jellomizer (103300) | more than 6 years ago | (#22262244)

I am missing a point. Novel 3 although being 10 years old and missing some patches seems to be working for her and the company... Why change?

Problems occure when people upgrade for the sake their old system is old. Then you get a brand new system with many more features and different security problems. If you have known problems and you have a workaround fix for it. It is often better to keap it then get new ones that you don't know about.

Re:a common preception (1)

Brian Gordon (987471) | more than 6 years ago | (#22262376)

The point is that the difference between 3 and 3.3 is security patches.. there's no reason not to upgrade

Sell!! Sell like crazy!! (1)

xtracto (837672) | more than 6 years ago | (#22261988)

The sollution is to sell GOOG like crazy now. The overvaluated stock will plumet in the next month or two... More if Yahoo accepts MS offer.

Re:Sell!! Sell like crazy!! (1)

jo42 (227475) | more than 6 years ago | (#22262190)

I'm surprised this hasn't hit the /. front page yet:

Google Stock Down After Results Miss Views [breitbart.com]

Yeah, I know, off-topic...

Re:Sell!! Sell like crazy!! (1)

haystor (102186) | more than 6 years ago | (#22262746)

I don't think Google gives guidance. This means the analysts missed their estimates, not Google.

Seriously? (3, Insightful)

Anonymous Coward | more than 6 years ago | (#22261366)

As someone who has spent too many years in financial services... while some traders are famous for thier bubble-gum and duct-tape approaches to things, this article is this biggest pile of BS I've ever read.

One thing rings true! (4, Informative)

Chrisq (894406) | more than 6 years ago | (#22261642)

In a place (bank) I worked a branch had a new trainee employee start and forgot to notify the IT department. When they phoned up and let us know we said we would do it as soon as possible. The answer we got was "That's OK, the branch manager has let him use his password for now".

While this really was a clueless trainee someone with the manager's password could authorise over-limit cash withdrawals, reverse transactions, see all sorts of files and make queries on customers that ordinary staff cannot do.

Want to bet? (1)

hermit_tries_virtual (1229948) | more than 6 years ago | (#22261784)

I know a guy in the banking industry that is willing to bet 7.2 billion dollars on it!!!

And this guy is lauded as a "computer genius" with insider knowledge!!!

Re:Seriously? (5, Interesting)

Corporate Troll (537873) | more than 6 years ago | (#22261962)

It is? I have worked in IT at financial institutions in the last 10 years. Nothing what he said sounds even remotely improbable. If you knew the stuff, I have seen, you can be happy that a simple wire tranfer doesn't fuck up every time.

Re:Seriously? (4, Informative)

Anonymous Coward | more than 6 years ago | (#22262298)

As someone who spent a long year at an unnamed investment bank:

1) they didn't bother using shadow password files (this was around 2000-2001)
2) they did everything with Excel and VBA - my line manager had a box dedicated to running VBA macros on spreadsheets to calculate tons of Equity Derivatives data throughout the day
3) nobody cared that much about telling each other their passwords

This was 8 years ago so they may be using Java for everything now - that was the way things were slowly, slowly heading when I left. But I do think VBA is overused and abused in finance more than some other sectors.

Re:Seriously? (5, Interesting)

jdigital (84195) | more than 6 years ago | (#22262452)

Maybe you haven't spent enough years to recognize the author of the article Dominic Connor - a highly regarded individual in these circles.

I found $2.34x10^x dollars yesterday when I worked out that one of our manual data entry people forgot to put a minus sign in front of a trade. Happens all the time.

Re:Seriously? (1)

7-Vodka (195504) | more than 6 years ago | (#22262726)

As someone who knows the business, do you think it's possible for one lowly trader to do what he did?
Do you think it's likely?
What's more likely, that a loner did this or that he is a scapegoat?

I'm having tremendous difficulty believing that one person could pull this off with what amounts to a little bit of operational knowledge. I'm much more inclined to believe that we are being fed a story and the truth about what happened will not be revealed to the general public.

lemme try (4, Funny)

gEvil (beta) (945888) | more than 6 years ago | (#22261374)

Give me $7.2B and I'll conveniently "lose" it for you. And I have no skills!

Prior Art (1, Funny)

Anonymous Coward | more than 6 years ago | (#22261482)

Give me $7.2B and I'll conveniently "lose" it for you. And I have no skills!

Isn't that how Red Hat started?

Reliable? (0, Flamebait)

ta bu shi da yu (687699) | more than 6 years ago | (#22261380)

I wouldn't put any money based on what the Register says. Not a very reliable source!

Re:Reliable? (0, Offtopic)

MrNemesis (587188) | more than 6 years ago | (#22261500)

Tech Report seems to think it was the WSJ that said it:

http://techreport.com/discussions.x/14047 [techreport.com]

whereas Ars doesn't name a source;

http://arstechnica.com/news.ars/post/20080201-microsoft-adds-yahoo-to-shopping-cart.html [arstechnica.com]

Re:Reliable? (3, Funny)

MrNemesis (587188) | more than 6 years ago | (#22261684)

D'oh! Reading the wrong damned thread! We need an article about multitasking making you stupid.

Re:Reliable? (1)

Chris Mattern (191822) | more than 6 years ago | (#22262340)

Had one just five days ago. [slashdot.org]

Re:Reliable? (1)

MrNemesis (587188) | more than 6 years ago | (#22262798)

...but why male models?

Hehe, yes, was aware of the multitasking article, just found it oddly coincidental that I had my first hit-reply-in-the-wrong-tab accident so soon after the article was published. I blame Friday afternoon, as anything that immediately follows thursdays can't be good ;)

Re:Reliable? (1)

Huntr (951770) | more than 6 years ago | (#22261520)

Maybe that's the key to losing a bunch of money very quickly.

Re:Reliable? (0)

Anonymous Coward | more than 6 years ago | (#22261552)

...says the guy on slashdot.

Re:Reliable? (1, Funny)

Anonymous Coward | more than 6 years ago | (#22261588)

... responds the anonymous coward.

Re:Reliable? (4, Informative)

sam_paris (919837) | more than 6 years ago | (#22261636)

Don't mistake the register's humorous undertones and brash site design to mean that site is unreliable. I personally know a couple of the journalists they are highly professional and yes, they tend to skew things to make them more humorous (which I like) but they don't bullshit or flat out lie.
 
I think some people get the impression they are the online equivalent of National Enquirer but it's simply untrue.

Now excuse me, the BOFH is screaming for my blood..

Re:Reliable? (0)

Anonymous Coward | more than 6 years ago | (#22262978)

Oh look, well known wikipedia admin pursing their continuing vendetta against The Register, because they aren't falling all over themselves to kiss the shining arse of Jimmy Wales.
 
Mod me +1 unsurprised

Stupid? (2, Informative)

scrotch (605605) | more than 6 years ago | (#22261384)

I may be stupid, but I read the entire article and still don't know what the guy is accused of doing. He traded stocks without permission? Can anyone clue me in?

Re:Stupid? (0)

Anonymous Coward | more than 6 years ago | (#22261526)

From what I've heard of it, he's just guilty of having lost a huge-ass amount of money.

I honestly don't get what the fuss is about - it's their job to trade stocks. Sometimes you win, sometimes you lose, and this guy lost it big, but why is that his fault?

If he's just a "lowly trader", then surely the responsibility (If there is any... Boy, I'm in a cynical mood today...) rests with his superiors?

Re:Stupid? (1, Informative)

Anonymous Coward | more than 6 years ago | (#22261690)

The guy invested huge amounts of money (if I am correct - around 50bn EUR), which is much more money than what he is normally allowed to invest. Actually, he did hide those investments from the bank's internal controls.

The 5bn EUR losses came after the bank discovered the fraud and sold his positions.

Re:Stupid? (1, Informative)

Jellybob (597204) | more than 6 years ago | (#22261750)

It was his fault because whenever he bought some stocks, he was meant to buy the opposite as well. So if he bought 500 MSFT shares, he should also have bought 500 APPL shares to balance them, on the grounds that if one of them goes down, the other will probably go up. He instead went and bought 1000 MSFT shares, and promptly lost all the money.

Yes, he should have been properly supervised and never allowed to do so in the first place, but in the end it was his responsibility to do his job, not somebody elses.

Re:Stupid? (4, Informative)

The_Chicken_205 (723443) | more than 6 years ago | (#22262210)

What happened was that he was only "authorised" to make "safe" purchases - buy stuff that was undervalued, buy low and sell at normal price.
What he actually did was buy at normal price, and hope that the price would go up.
What then happened was that he bought at normal price, but the price went down.

To compound the issue, he was playing with more money than he was allowed to. e.g. He was allowed to play with [currency of your choice]100,000, but he was actually playing with [currency]10,000,000.

TFA suggests that he had been promoted out of the "lowly lowly trader" position, but was still playing with those accounts (that he shouldn't have had access to).

The IT angle was that he was using "creative" processes within Excel to hide this - devs hardcoding admin passwords into the spreadsheets.

Re:Stupid? (0)

Anonymous Coward | more than 6 years ago | (#22261816)

Apparently he admitted he sometimes kinda traded without permission, fooling the control software, but here in France most people (especially in the financial sector, according to the news I heard) are in great doubt that he did lose all that money by himself. Besides, he seems not to have any reason for doing so, except trying to surpass other traders which would have involved taking greater risks than he was allowed to.
But of course, SocGen says that everything is fine, their control systems and processes are still fine, nothing is to be changed, blah blah blah.

Quite a strange story me think.

Re:Stupid? (4, Informative)

Yvanhoe (564877) | more than 6 years ago | (#22262050)

Quick summary : He was a trader at one of the biggest French bank, manipulating millions owned by the bank using the usual scheme : buy low, sell high. Except, he managed to fool controls to manipulate more money than he was allowed by several orders of magnitude, allowing him to have a very good overall performance. His objective was _apparently_ only to get higher raises, not to steal that money. So he traded billions in order to make millions of profits. He has been doing this for several months. A few weeks ago, bank officials discover his hidden account with ~50 billions worth of unauthorized stocks on it. They panicked, they sold this as discreetly as possible in a few days at loss (~ 5 billions of loss ), possibly causing a worldwide fall of stock exchanges. The trader admitted that he did something he was not authorized but called the selling a bad decision made in a hurry.

Of course there are many speculation about all that he could have done by bypassing usual controls.

Re:Stupid? (0)

Anonymous Coward | more than 6 years ago | (#22262448)

...they sold this[50 billion dollars worth of stock] as discreetly as possible in a few days at loss...


Yeah good luck with that.


His objective was _apparently_ only to get higher raises, not to steal that money.


Ahh, now I understand why he didn't bail earlier; my first thought was, "How many billions of dollars do you have to steal before you have enough????" It seems like it would have been easier if he had just scammed a few million and fled, but hey whatever floats his boat.

Re:Stupid? (2, Informative)

Orne (144925) | more than 6 years ago | (#22263062)

My understanding, in addition to the information above, was that he was a junior trader (newb), and because of that had an artificial limit on his portfolio, which he then circumvented that limit by obfuscating his trades into hidden accounts.

He would then use any profit from the hidden account to make his "official" portfolio look like it was performing well, and he would get bonuses from his employer. However, since Dec 07, the markets have been in a down slide, and the value of the hidden account went negative (more money went in than the value of the shares).

When the losses ware discovered by an auditor (Wed Jan 16), I had read it was valued at a US$1.5-2 billion loss. However, in the haste to clear the loss, the bank began selling (Fri Jan 18) the stocks in very large blocks as they discovered them. This induced a "herd-effect" in the market, where traders looked at X and said, "If Big Bank is selling such big blocks of X, they must know something I don't, so I'll sell too". Suddenly, everyone was selling everything, and the markets slid hard. However, the original bank was still unwinding the hidden accounts over the weekend, and by then time they were ready to sell the last batch, the value of the shares had dropped even lower. Rinse and repeat, and you have the reported $7 billion loss.

This is why the trader scorned the bank for unwinding it so fast, which induced a much greater loss than the original value. The Register author was trying to offer an uneducated guess as to how the trader was able to obfuscate such losses.

-- Scott

Re:Stupid? (1)

budgenator (254554) | more than 6 years ago | (#22262160)

He was supposed to be buying stocks in companies who's market value of the outstanding shares were far lower that the value of their assets less liabilities, or were selling on one exchange for less than they were on an other exchange; in short we was supposed to be looking for and trading sure-things or close to it.

Re:Stupid? (1)

FredFredrickson (1177871) | more than 6 years ago | (#22262526)

I don't think you're stupid. I found the article to be so dry, I couldn't sap any information out of it due to it's lack of obvious direction. Thanks to slashdot readers who have summed it up, I have an idea of what happened.

Training material (1)

rdradar (1110795) | more than 6 years ago | (#22261412)

He should have read some training material [showyourpower.net] from the internets first.

they admit currency trading is gambling (2, Informative)

davidwr (791652) | more than 6 years ago | (#22261492)

From the "training material" link:

Currency market is sometimes almost unpredictable. You will lose some money, many times. What counts is that in long run you win more money than you lose. [emphasis added]
.

In other words, it's like poker in Vegas:
If you are good you can win. If you aren't you will lose. Either way, the house/broker always wins and it's a net loss for the players.

Re:they admit currency trading is gambling (2, Funny)

QuickFox (311231) | more than 6 years ago | (#22261888)

Either way, the house/broker always wins and it's a net loss for the players.
But of course. That's why they're called brokers. They make people go broke.

OT: Terrorist sig (1)

davidwr (791652) | more than 6 years ago | (#22262138)

One objective of terrorists is to force people to make a choice:
Tyranny or death.

Or, to put it another way, death now at the hands of the terrorists or death in a generation when people forget why they let the dictators in power and start the revolution.

Me? In a country with more than 300,000,000 people, I'd rather live in a free society and lose a few thousand people in a big event [9/11] every decade, a hundred people in a medium-sized event [Oklahoma City, London, Madrid, Virginia Tech, Columbine] every year or two, and a few dozen more people a year one or two at a time [smaller bombings, abortion-clinic or other non-government-target attacks, lone nut with a gun] to terrorism than live in an ultra-safe cocooned police state.

If government doesn't make it a habit of pissing people off the supply of suicide-bombers is self-limiting and we'll be left with the abortion-clinic bombers, disaffected/depressed students, and nut jobs.

Easy! (5, Funny)

arcite (661011) | more than 6 years ago | (#22261430)

Buy high, sell low!

Re:Easy! (1, Funny)

Anonymous Coward | more than 6 years ago | (#22261976)

Or better... Put all your money in the sandwich-heavy portfolio!

How to make a small fortune. (5, Funny)

JonTurner (178845) | more than 6 years ago | (#22262260)

Q: Want to know how to make a small fortune in the stock market?
A: Start with a large fortune.

thankyouverymuch. Don't forget to tip the waiter. No stock tips, please.

Re:Easy! (1)

fm6 (162816) | more than 6 years ago | (#22262996)

What a cliche! Knowing which stocks are poised to crash is harder than most people realize. Really, if you're determined to wipe out your life savings, you've got to be prepared to buckle down and do some work. Gasoline and matches are also useful.

Our president lost trillions... (1, Funny)

Anonymous Coward | more than 6 years ago | (#22261436)

and he also has no skilz.

Cost of Iraq war [nationalpriorities.org]

But there's an overlooked part of this story... (1)

Dr. Manhattan (29720) | more than 6 years ago | (#22261460)

See here [sheldoncomics.com] ...

Huh? (1)

wcrowe (94389) | more than 6 years ago | (#22261472)

I read TFA and I have only a vague idea what the author is talking about.

Re:Huh? (0)

Anonymous Coward | more than 6 years ago | (#22261658)

And that, my friend, is why you will always be poor. ;)

Re:Huh? (2, Funny)

cleatsupkeep (1132585) | more than 6 years ago | (#22262956)

So here is how I understand it. He modified the system so that when a transaction used fractions of a cent, it truncated it and put the fractions of a cent into a new account he had made. However, he must have missed a decimal point, because when he checked the next day, he had 7.2 billion dollars. He lost it by writing a check and putting it under his bosses door when the office was closed.

The code used (5, Funny)

Malevolent Tester (1201209) | more than 6 years ago | (#22261510)

10 STEAL Money
20 GOTO 10

Re:The code used (3, Funny)

HeavensFire (1161917) | more than 6 years ago | (#22262108)

*break* *break* *break*
*break* *break* *break*

*pulls power cord*

Beyond trusting sources, don't trust the authors (0, Flamebait)

dada21 (163177) | more than 6 years ago | (#22261538)

The SocGen "scandal" scares me mostly because it seems, with consistency, the people calling foul in the media tend to be the very people who also want more regulation of banks in investment schemes. As the media calls for tighter controls over investments, I find more people willing to nod their heads in agreement, even though we need to see that it is CURRENT regulations that lead to these fiascos.

Why do we have ANY bailout protections for investments, including savings accounts? When you give someone your money and hope to make money in return, there is risk. Part of the chance for reward (profit) should be loss of your money. That's what investing is. Yet when we get MORE regulatory control, it gives people less fear in losing everything.

The FDIC (and the SEC) are both such organizations that increase regulations so people feel safe, even though they should NEVER feel safe about investments. That's risk, people! The FDIC has to "insure" deposits because of the fraudulent fractional reserve banking system. What we need is full reserve banking [fullreservebanking.com] , with private regulatory audits, and greater knowledge that the money you put in isn't loaned 8X more than the bank has on your deposit record.

What SocGen did is not uncommon. First, the bank has the ability to create money out of thin air (see the money multiplier effect). Second, most investments today do not generate any profit or income (see dividends), they just grow in value because other sucks have more money in the future than the current sucker had to buy (see monetary inflation), so the price seems to go up even though the value stays on par or goes down.

For me, there is one investment: put money into my own business, which pays me dividends (profits) instead of just showing an inflationary-based stock value increase. If I need to "save" money, I put it into hard assets such as gold, land (not mortgaging it but for cash), or hoarding in a variety of currencies (physical hoarding, not sticking it into a bank to have it cause inflationary-effects via the money multiplier effect) like the Euro, the Rupee, the Yen and even the US Dollar.

It sickens me that people are going to call for more bank regulations, when it is obvious that regulations of any kind on investments only do one thing: make people feel safe when they should think twice about anything risky.

Re:Beyond trusting sources, don't trust the author (4, Insightful)

SatanicPuppy (611928) | more than 6 years ago | (#22262366)

Generally, the economy works better when money circulates...When it has "velocity", which is another one of those words like "multiplier" which I'm going to assume you understand. By dumping surplus money into commodities rather than banks, you're effectively hiding your money under your bed, and dampening the flow of money through the economy. People did this for a long time until a smart guy named Adam Smith pointed out that hoarding gold didn't make anyone especially wealthy; it was trade that built wealth, and that meant the movement of money and goods.

So that's why banks exist, and why we allow things like the multiplier effect to run our economy. The granddaddy of all multipliers (the Fed) has been active for the past few weeks, trying to pump some money into the economy. Bush is hedging his bets, and backing Keynes at the same time with a stimulus package. Historically, these actions have added velocity to currency, and fast currency tends to stimulate the economy.

The reason for the FDIC, and SEC, and Social Security and Welfare, and every other similar system is to basically keep the money in people's pockets. This is important for the reasons above; cash circulating through the economy creates jobs and stimulates the economy. A bunch of people losing all their money (for example, when a bank fails) means you have a bunch of people who suddenly can't buy groceries. Grocery stores start laying people off, because they have to cut costs, which means MORE people can't afford groceries, and so forth. People like you pull their money in and convert it to commodities, instead of putting it into banks, which means banks can't make loans to support people who are trying to start businesses or buy houses, which, again, slows the economy and costs people their jobs.

Basically your thoughts on this stuff fly in the face of all mainstream economic thought for the last several hundred years. I'm assuming you're a Ron Paul guy, because echoing his "economic" beliefs, and Gosh, we'd sure like to move back to the gold standard. I'd almost like to see him get elected, just out of academic interest in the economic chaos that would ensue.

Anyway.

Re:Beyond trusting sources, don't trust the author (5, Interesting)

dada21 (163177) | more than 6 years ago | (#22262700)

Generally, the economy works better when money circulates...When it has "velocity", which is another one of those words like "multiplier" which I'm going to assume you understand. By dumping surplus money into commodities rather than banks, you're effectively hiding your money under your bed, and dampening the flow of money through the economy. People did this for a long time until a smart guy named Adam Smith pointed out that hoarding gold didn't make anyone especially wealthy; it was trade that built wealth, and that meant the movement of money and goods.

Yes, Adam Smith was correct, that wealth is built on trade. The problem with what you said is that there is a hidden effect from almost every transaction in said trade -- the profit made by the cartelized banks from each and every dollar that they create through the money multiplier effect. They don't actively "give" money out that they've created through the fraudulent fractional reserve banking standard, they loan it out. In fact, they loan out money based on previously loaned out and deposited money, so they're making money on nearly every loan transaction, even though the money doesn't physically exist. This hidden tax that only occurs with fiat money in a fractional reserve banking and monetary system is a form of wealth transfer from the economy as a whole to the cartelized banking institutions, and it actually causes a lag on the economy?

Don't believe me? Look at the GDP figures for the past, oh, 20 years. Subtract TRUE price increases over that time (don't use the ignorant and embarassingly fake CPI figures) from that GDP. We've been in a recession for 20 years, maybe 30 years, even though we may seem to have been strong for a few segments in that time. At almost no time in 30 years have we truly had GDP growth after subtracting the loss of the value of the dollar from the previous time-frame of GDP analysis. This means we're in a permanent recession, and the recession comes from the loss in value of the dollar, which is multiplied many times over due to the hidden tax the banking cartels have created from their money multiplier profit drain.

So that's why banks exist, and why we allow things like the multiplier effect to run our economy. The granddaddy of all multipliers (the Fed) has been active for the past few weeks, trying to pump some money into the economy. Bush is hedging his bets, and backing Keynes at the same time with a stimulus package. Historically, these actions have added velocity to currency, and fast currency tends to stimulate the economy.

No, it doesn't. That's a false statement, and one that a Keynesian spews regularly. Just because the economy may show growth in pure dollar totals, the value of the dollar is decreasing over that time, over and beyond any economic growth shown by more dollars spinning around. If the GDP grows from $10.00 to $10.75 in a year, but the dollar has lost 10% of its value, the actual growth in the economy in dollar terms is 7.5%, but the actual growth in value terms is -3.25%. This is a fact that is readily ignored by Keynesians and other pseudo-economists since these United States have withdrawn from backing the monetary notes with anything of current value. We are in a recession, and we've likely been in a permanent recession since Nixon's time.

The reason for the FDIC, and SEC, and Social Security and Welfare, and every other similar system is to basically keep the money in people's pockets. This is important for the reasons above; cash circulating through the economy creates jobs and stimulates the economy. A bunch of people losing all their money (for example, when a bank fails) means you have a bunch of people who suddenly can't buy groceries. Grocery stores start laying people off, because they have to cut costs, which means MORE people can't afford groceries, and so forth. People like you pull their money in and convert it to commodities, instead of putting it into banks, which means banks can't make loans to support people who are trying to start businesses or buy houses, which, again, slows the economy and costs people their jobs.

What a farce of a statement, on its face and on its rear. Would you rather lose 100% of your investment because of a bad investment over a year, or slowly lose 10% of your investment while believing you're gaining 5% of it yearly? They're BOTH bad, and they BOTH happen because of fractional reserve banking, pure and simple. If you deposit $100 into a bank, and the bank goes under, it is because the bank lied about how much money is loaned out versus what it could have loaned out (look at Northern Rock). Banks are allowed to loan out much more than they take in, this is fraud, but it is legal fraud. Losing that $100 is bad. Now, if you deposit $100 into a bank, and make $5 in the first year, but the dollar is 10% weaker over a year, you may have $105 in the bank after a year, but now you can only buy $94.50 worth of goods compared to last year's dollar. This is also a loss, but it is hidden because of the negative growth in value of an investment that shows dollar growth but does not account for value loss.

People like you pull their money in and convert it to commodities, instead of putting it into banks, which means banks can't make loans to support people who are trying to start businesses or buy houses, which, again, slows the economy and costs people their jobs.

No, people like me put our money into our businesses, which earn us a REAL profit (dividend) versus a FAKE profit (stock value increase without dividend) like in the stock market. My money really grows, and as it grows, I hire more people. I spend more on infrastructure, while still maintaining a true profit over the loss of value via monetary inflation. You put your money in the stock market by buying used stocks, not new ones. Those used stocks have gone up in value usually because the dollar has plummeted in value over the time since the previous used stock buyer purchased the very stocks they're selling. The stock market goes up not because the companies are paying bigger profits, but because the dollar has lost value, so you need more dollars to buy the same amount of company. Yes, some companies actually have expanded their infrastructure, acquiring more assets, etc, but in reality none of those things matter unless the company is sold. Stock values going up have nothing to do with company values going up -- they're purely a mirage caused by the fiat money system.

Fractional reserve banking is fraudulent, it is theft, it is a lie. The average labor producer (i.e. consumer) must understand this in order to make themselves wealthy. If you listen to the Suze Ormans, you can save $2000 a year and by retirement you'll be a millionaire. Yes, but you'll be a millionaire when a million dollars might not be worth more than $100,000 today. That's the truth with most investment advisors -- they want their income now, by showing you fake values tomorrow.

How are those 401Ks of yours doing versus the cost of living increases?

Re:Beyond trusting sources, don't trust the author (1)

rho (6063) | more than 6 years ago | (#22262986)

This is important for the reasons above; cash circulating through the economy creates jobs and stimulates the economy.

That isn't really true. Wealth is generated when assets move from a lower value to a higher value. Money isn't really an asset. (Well, "money" in the strictest sense.) Wealth is created when you take your herd of goats and slaughter a few of them for meat and milk a few of them to make cheese. A herd of goats is valuable; a herd of goats being used for food is more valuable. Money is simply a convenient way to carry your herd of goats around when you want to buy a Nintendo Wii.

When you turn money into an asset in and of itself jobs and economic stimulation does occur. But the inflationary nature of this process leads to a boom-and-bust business cycle. You can't have economic growth through money without monetary inflation. You can't turn money into better money. You can only take money out of GoatCo and put it in CowCo, which gives better dividends or whatever. You're not the only guy doing this, though, so the profits have to come from somewhere. Thus the Fed "prints" more money, and soon milk is selling for $5/gallon.

Re:Beyond trusting sources, don't trust the author (1)

gznork26 (1195943) | more than 6 years ago | (#22262570)

"The FDIC has to "insure" deposits because of the fraudulent fractional reserve banking system. What we need is full reserve banking, with private regulatory audits, and greater knowledge that the money you put in isn't loaned 8X more than the bank has on your deposit record."

The tallysheet bankers' Ponzi scheme is so fragile they have to send in covert assistance -- Plunge Protection Teams-- to prop up the securities markets by purchasing depressed stocks, bonds and derivatives to avert a free-fall, using money created from nothing to make the buys. Goldseek.com has a piece on the PPTs, and Ellen Brown discusses fractional reserve banking in her book, "Web of Debt", and in the associated blog.

I wondered what might happen if the whole scheme fell apart, so I've started a series of short stories exploring the world after the collapse of the banking system. The first one, "As Is", starts like this...

* * *
Ryan Svorlin stood in front of the big house, gaping. The keys hung loosely in his shaking hand, clattering against one another in rhythmic reflection of the waves of shock coursing through his troubled mind. "It... it's... mine," he stammered, unable to comprehend what had just happened.

"Well, sure," the real estate lady told him. "You did sign the papers, didn't you?"

He slowly turned to look at her. Paper-thin skin stretched across unnaturally prominent cheekbones. Overdone make-up. Probably over seventy, he guessed. "Of course. But I never expected to --."

"To be selected? Well, someone had to be. They couldn't afford to let these places go vacant, after all."

Less than a year had passed since the first cannonade in the financial meltdown destroyed the façade of normalcy masquerading as prosperity in the United States. Some faceless blogger had instigated a mortgage strike, an incautious response to the revelation that the reason the government was so determined to protect the masses from being dispossessed in their forced insolvency was the dirtiest little secret at the heart of the country's high-flying economy - that nobody really owned all those high-risk loans, and therefore the houses could not be foreclosed. No one could have predicted what happened next.
* * *

You can read the whole story at http://klurgsheld.wordpress.com/2007/12/18/short-story-as-is/ [wordpress.com] then click on to read "Full Value" and "LA Scrip".

P. Orin Zack

Re:Beyond trusting sources, don't trust the author (0)

Anonymous Coward | more than 6 years ago | (#22262612)

There is a large difference between financial services regulation, and FDIC-style promises from governments. The two seem somewhat entwined in your mind.

Also, AIUI, individual banks do not have the ability to create money from thin air. The FR/BoE/etc. can, but individual banks cannot.

Your summary of "The Creature from Jekyll Island" is somewhat flawed. I suggest readers go to the source.

Re:Beyond trusting sources, don't trust the author (1)

dada21 (163177) | more than 6 years ago | (#22263058)

While I appreciate "The Creature from Jekyll Island," I also think the book has numerous misthoughts. Yes, the SEC is "regulatory" and the FDIC is "insurance" but neither of them are correctly defined by either of these two words. The FDIC does not keep reserves like an insurance company should. If a bank fails, the FIRST step is the FDIC forcing member banks to attempt a bailout, using the member bank's funds. A very close friend of mine is the GM of a large bank in the Midwest, and he always talks about the fears that he'll have to bail out another national bank should they come up short on funds. Yes, this bailout is more of a loan, but fairly unsecured. The FDIC's only weapon against bankruptcy (bank runs) is monetary creation. Not much of a bailout when it destroys everyone's money to save a few.

The SEC's regulation is usually post-trauma, meaning it creates new regulations to try to fix previous errors that were likely caused by either their own previous regulation, or by the Federal Reserve's manipulations of the money supply, interest rates, or whatever else they believe they can control.

I do like Griffin's book, but I don't adhere to the conspiracy theories that most anti-Fed people have. The banks are not conspiring to destroy the middle class together in secret, they're just a legal cartel (monopoly) who are all independently trying to make a lot of money using the fraud allowed by government. The fact they they seem in lockstep is just a mirage, and the truth profiteers are not those who own the banks, but those who run the economic trading systems. It is far better to make 1/10% on trillions than try to make 5% on billions.

Insider knowledge (5, Informative)

Dan East (318230) | more than 6 years ago | (#22261556)

He pulled this off using insider knowledge. He worked previously in the back office, which oversaw all trading. The bank then moved him into trading, which according to statements I've read from other bankers, was practically a violation of policy.

Since he knew the flow of information through all parts of the bank, he was able to cover his tracks and employ creative accounting. He knew what types of accounts and trades would not raise flags, so he would flow money though those routes.

This type of security risk can exist in practically any business. If you're a developer or IT person, and suddenly find yourself working within the infrastructure you design and maintain, then guess what? You can most likely bend the system around some rules. The same type of rule applies for relatives and spouses. Most businesses will not let an employer be managed or supervised by a relative or spouse for the same reason. They can cover each other's tracks, and have more complete knowledge of the system.

Dan East

Re:Insider knowledge (4, Funny)

sskagent (1170913) | more than 6 years ago | (#22261692)

...employ creative accounting.
Is that where they draw little faces out of the 0's and make 8's into eyes??

Re:Insider knowledge (1)

MMC Monster (602931) | more than 6 years ago | (#22261850)

...employ creative accounting.
Is that where they draw little faces out of the 0's and make 8's into eyes??

Why, yes. Yes it is. As a matter of fact, I make a pretty nice looking decimal point.

Re:Insider knowledge (1)

Kelz (611260) | more than 6 years ago | (#22262044)

Granted, a bit of luck was involved if it was indeed his goal to make the bank lose money. The bank had to even all debts on one of the absolute worst days for the market.

Re:Insider knowledge (-1)

UbuntuDupe (970646) | more than 6 years ago | (#22262198)

Isn't the point of insider trading to *make* money, and make it *easily* and predictably? Losing 7.2 billion dollars isn't supposed to happen when you have insider knowledge (until you get hit with fines...).

It's like you're saying he stole the keys to cars at a dealership, and impersonated sales staff there ... and then sold some customers the cars, cooked the books to make it look legit, and left the car dealership with all the money.

Re:Insider knowledge (2, Informative)

dan the person (93490) | more than 6 years ago | (#22262270)

he wasn't using 'insider knowledge' i.e. information about a company that has not been made public, to trade in that companies shares.

He was using inside knowledge of his employers trader monitoring procedures, to trade with his employers capital beyond his allowed limits.

Re:Insider knowledge (1)

JamesP (688957) | more than 6 years ago | (#22262896)

He pulled this off using insider knowledge. He worked previously in the back office, which oversaw all trading. The bank then moved him into trading, which according to statements I've read from other bankers, was practically a violation of policy.

But not letting him trade, wouldn't that be an admission of security by obscurity?

The checks and balances must work independent of they being known.

Maybe that's what happened, security by obscurity, which means no security at all.

From The Fine Article (1)

Livius (318358) | more than 6 years ago | (#22261678)

Whenever there's Visual Basic, bad things are sure to happen, but apparently, he was

"armed only with VBA, Walkenbach and the right passwords"

so I would say both VBA stupidity and human stupidity were factors.

"Fooled by Randomness" (3, Interesting)

gedhrel (241953) | more than 6 years ago | (#22261738)

This - very entertaining book - explains the process better. The characterisation of traders who blow up is particularly damning.

Curiously, Nick Leeson (the man who sank Barings Bank) supplied a soundbite saying how he didn't believe that the losses in this instance could have reached such a size. And that's the problem: he hasn't learned anything from his experience.

The difference between "trader" and "rogue trader" is simply one of the amount of luck the lucky idiot has.

what he did/how he did it (5, Informative)

mbaGeek (1219224) | more than 6 years ago | (#22261752)

What he did
Basically the guy was "gambling" on stocks and losing - then making bigger bets trying to catch up. He claimed that he was simply trying to get a big bonus and didn't have any malicious intent.

how he did it
He went largely "unsupervised" because he was considered unimportant (and hadn't taken a vacation in a long time - so he covered his own tracks until the whole thing collapsed).

Most financial institutions require mandatory "vacations" so they can check up on people (this guy would have been caught much sooner if someone else had a chance to look at his "trading desk")

the funny part
what I love is that they haven't fired him yet, he has been told to not come to work and they aren't paying him, but France's labor laws require a "sit down" before they kick him out the door.

In the short term he is being looked at as a "Robin Hood" type figure by some people (who think he just ripped off the greedy bankers, not that he committed fraud and stole) - so mark this up as an unintended consequence of ridiculously strong labor unions

Re:what he did/how he did it (0)

Anonymous Coward | more than 6 years ago | (#22262114)

mark this up as an unintended consequence of ridiculously strong labor unions

How are labour unions responsible for him skipping holidays and the bank putting him in a position of having insider knowledge? You really seem to have an axe to grind against France's working environment.

Re:what he did/how he did it (1, Interesting)

Anonymous Coward | more than 6 years ago | (#22262162)

Check your facts : they guy was not losing actually. The loss was the result of the SocGen liquidating all those fraudulous position at the worst time possible (during the mini krash from last week). They of course could hardly maintain such positions which represented more than five times the capital of the bank, but the positions were beneficiary.

Re:what he did/how he did it (1)

mbaGeek (1219224) | more than 6 years ago | (#22262890)

...lol that is a semantic argument if I've ever heard one kind of the old "chicken and egg" thing

they had the "fraudulous" (maybe http://dictionary.reference.com/browse/fraudulent [reference.com] would be better) positions because of him. some of the "talking heads" have even blamed the global market "mini crash" on his trades

interesting logic though

Re:what he did/how he did it (1)

nanoflower (1077145) | more than 6 years ago | (#22262432)

But he didn't steal. The money never left the bank, and from all accounts he never intended to take any of the money. He did conduct fraud within the confines of the bank but it was done to make himself look better. I'm not sure that he broke any laws. Although I'm certain he broke rules that the bank had that's not the same as the criminal acts of fraud and theft. As to him still being on the bank's staff I don't see that it makes much difference if he isn't allowed in the office, and isn't getting paid. He's effectively a non-employee at this time, from the sound of it.

Re:what he did/how he did it (0)

Anonymous Coward | more than 6 years ago | (#22262618)

Most financial institutions require mandatory "vacations" so they can check up on people

All well financial institutions require mandatory "vacations" so they can check up on people. (Unlike this bank one of France's biggest)

A New Low (2, Insightful)

Nom du Keyboard (633989) | more than 6 years ago | (#22261832)

So now Slashdot is carrying articles that are mere speculation. I realize that "serious programmers" love to trash VB everywhere, but can't we at least have facts on our side first?

Re:A New Low (2, Insightful)

jacksonj04 (800021) | more than 6 years ago | (#22262536)

I'm not even sure what VB has to do with anything. As far as I can tell it was a purely human cock-up which would have applied if he'd had skills in anything. Moving people around, failure to revoke permissions, poor security, and non-enforced policies all make for a bad day's work.

Yikes, $7.2B (-1, Offtopic)

Anonymous Coward | more than 6 years ago | (#22261840)

You're about to experience chaos...

Read: (2, Interesting)

StargateSteve (1054492) | more than 6 years ago | (#22261886)

"The author freely admits that his story is not based on hard sources, but his experience in the banking industry lends plausibility." Read: "This guy has no proof, evidence, or accounts of what happened, but this sounds good, so lets blame MS" I'm on board with that. This is /.!

The point of the article... (3, Insightful)

spectrokid (660550) | more than 6 years ago | (#22262046)

is that anybody with some VBA knowledge will sooner or later get access to other peoples Excel sheets in order to fix problems. This is just a form of social engineering. Once you sit in front of the PC, logged in as another user and telling that gratefull person you get nervous when other people look you on the fingers while you try to solve a complex problem...
Another interesting point is "Rights-creep". Often people are given acces rights as they move between functions, but these rights are never revoked when moving on to the next...

$7 Billion is Chump Change Compared to... (0, Offtopic)

BoRegardless (721219) | more than 6 years ago | (#22262106)

Hundreds of billions of losses, because Wall Street figured out how to "package" "insured" mortgages on "inherently safe" homes, where the under-girding asset is solid ground that is "always" appreciating on average.

If nothing else, the article on the $7B loss in France ought to serve as another wake up call to "managed risk systems".

The PHDs, the MBAs, the CFOs & the Risk Analysis people with their algorithms all pronounced it a sound "system".

What they didn't look at was what happens when mortgage companies and individual salesmen and appraiser's collude to scam property values and borrower's financial condition (along with pressure from Jesse Jackson & Villagarosa types to not discriminate "against race").

The top level control system was probably figured out tightly.

Monitoring the entry level data risk was and is a disaster. Hundreds of billions at the very least are lost (transferred if you will) as a result.

How come I don't hear of any call for heads to be lopped off in the mortgage bundling business? Maybe money, power & influence in Washington anyone?

You can bet there are some very highly placed traders in these securities whose customers would like to do that.

Bad banks (5, Interesting)

Anonymous Coward | more than 6 years ago | (#22262152)

I interviewed for a senior IT management position at a fairly decent size bank several years ago. Maybe this bank is within the top 25 in the USA.

I met with the CIO, and we had a great discussion in terms of where they were in terms of their systems. The CIO seemed to be an honest, straight-shooting guy. He was new to the bank - he started perhaps 8-12 months earlier.

He stated that the systems of the bank were in danger of total catastrophe. There were internally-built programs without source code. The divide between production, QA, and development environments broke down. Production runtime was manipulated by developers in real time. Some hardware was so old that it was running obsolete operating system software. If the machines failed, recovery would be extremely difficult, at best.

Coming from another class of institution, I found these statements shocking and disheartening. I liked the CIO - he was certainly fighting a huge, dangerous battle... and it was clear that he knew how much trouble he was in.

I ended up turning down the position offered, as their financial compensation wasn't nearly commensurate with the career risks I'd be taking stepping into such a huge minefield.

The CIO said he understood, but his budget was constrained - the bank was in severe cost-cutting mode, looking for a merger.

Nice.

This security breach... (1)

gr3kgr33n (824960) | more than 6 years ago | (#22262154)

is obviously a Layer 8 problem.

Startanairline (4, Funny)

ShakaUVM (157947) | more than 6 years ago | (#22262238)

According to Richard Branson, the best way to become a millionaire is to start as a billionaire and found an airline.

Re:Startanairline (0)

Anonymous Coward | more than 6 years ago | (#22262848)

Must not have worked out all that well, given that he's decided he needs to found a spaceline. Clearly, it's harder than he thought to become a millionaire.

Re:Startanairline (0)

Anonymous Coward | more than 6 years ago | (#22263086)

Sadly, your method takes considerable time. The fastest way to become a millionaire is to start off as a billionaire and then get married.

How much do you trust your IT staff? (3, Insightful)

griffinme (930053) | more than 6 years ago | (#22262276)

I have seen several instances where someone that did a little digging on the back end could easily make the system do what ever they wanted. They become more valuable because they can fix the system when it hiccups. "Customer Joe has a weird charge on it. The system won't let us fix it. What are we going to do?" The guy that knows the backend then goes in and changes it right on the database and is a hero. But if he can fix things then he can also break things and cover it up. It goes back to managements desire to wear blinders. They want to put super locks on the physical doors but give the keys to kingdom on the system to anyone that is willing to help.

Not guilty until proven (5, Interesting)

i-neo (176120) | more than 6 years ago | (#22262286)

Here in France someone is not guilty until it has been proven.
Just let the justice do its work, we can then speak about it using some hopefully serious investigation to base our comments on.

Several things are unclear:
- Why and How can this man be responsible for a such thing ?
- What gives its employer the right to judge him ? (nothing according to French laws)
- Is it really a fraud or is it a professional mistake ? This point is still unclear according to the justice.
- How are the amount accounted ? According to the latest news the bank itself is responsible for the loss and it was determined by the bank strategy not the trader's.

I think this is a very complicated situation involving various interests (financial places, politics, justice...).
It is not obvious how things will be sorted out, speculating about it will not help.

I am giving up my karma on this one ;)

Re:Not guilty until proven (0)

Anonymous Coward | more than 6 years ago | (#22262642)

This is a key point here - the guy didn't lose all that money or commit fraud, from what has been reported so far. He did intentionally trade beyond his (and his employer's) limit though, which is definitely misconduct. I don't think that's necessarily a crime unless it results in something else happening and you can be shown to have been negligent. In this case, his employer is the organisation I would have thought to have shown negligence - his conduct is between him and his employer.

Re:Not guilty until proven (1)

Yold (473518) | more than 6 years ago | (#22262930)


1.) Why and how can he be responsible?
His job was to make risk-free investments (from TFA), which isn't particularly risky. He lost 7 billion dollars making risky investments without authorization. BTW, it is quite possible to eliminate unsystematic risk, and profit from undervalued securities.
2.) See answer #1.
3.) See answer #1.
4.) Of course the bank is going to bite the bullet.

Explain to me how a trader making unauthorized trades with unauthorized sums of money is not responsible.

How to Lose $7.2B for Dummies (0)

Anonymous Coward | more than 6 years ago | (#22262598)

The quick and easy way is to become a politician. Get voted in and promptly lose $7.2B of taxpayers money. Heck, you don't even need basic skills for that, and with some basic skills, you can lose a whole lot more than $7.2B.

Could Easily Do This (2, Funny)

c_woolley (905087) | more than 6 years ago | (#22262970)

How to lose this kind of money is SIMPLE! Get married.

Look at the guy's CV (4, Insightful)

bockelboy (824282) | more than 6 years ago | (#22263034)

I hate to say it, but the Reg might be right. Assuming the linked CV is the real thing, he only claims to have experience with Excel macros and a smattering of VB.

The real part of his hack is probably social engineering and stumbling upon oversights in the trading system. How many IT folks, even the dumb ones, can say "I could take this whole system down if I wanted!" - this guy actually did.

Goes to show that there's a difference between checking off boxes for auditors and actual security. Auditors can make sure the proper safeguards are in place; auditors can't tell if everyone in the department uses the same password.
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