Tuesday, September 20, 2011


I never had a dream much less an idea.  I could report that after a hours-long conference call between the Greeks and the Troika, it was announced that the Troika was to return to Greece next month, but who would care except the DOW which panicked again and gave up a plus-1% gain for the day.  Fear not, the Greeks will get one more payment.  The announcement will be something like, "Having determined that Greece has made substantial progress in fulfilling the requirements for continued financial support, we (the Troika) have agreed to advance..."  Remember, you heard it here first.

The other thing over which I haven't lost much sleep is the rogue trader at UBS who apparently cost them around 2.3 billion euros over the past couple of years sitting at a "Delta One" desk and doing things that I can't even pretend to understand and which, apparently, the management of UBS didn't understand either.  The odd part about this is that UBS has, over the past ten years, lost more money than Carter has pills so you would thinks their risk management protocols would be among the best in the business.  Wrong again.  A long time ago a wise old banker told me,"Charlie, if they're gonna get ya, they're gonna get ya and there's nothing you can do about it."  He was right but I still like my view that nearly got me fired that "if an avaerge intelligent man can't explain the risk, you have too much risk."  I'm pretty sure there's a big element of that in this case.  I'd be willing to bet that whoever was supposed to be watching over this thing was doing so on a net position basis with some very substantial help from a computer and had no real understanding of what was being netted out much less with whom.  Which leads me to the question of whether this sort of activity should be happening within banks, within independently capitalized subsidiaries of banks or be undertaken at all.  A "Volker Rule" redoux, if you will.

I am ashamed to admit that as much as my creative side (which has taken a VERY extended nap over the past few years) is titilated by these kinds of activities, my risk management side asks the question what real good is done by any of this except to keep a large number of precocious children amused by allowing them to play with very fancy machines involving vast sums and paying them a great deal of money to see how close they can come to whatever edge there may be in this business?  Ban it?  No, not really but God made Hedge Funds to be freestanding:  If you need the kind of funding only a bank can supply fine, go out, start small and earn it so you can become big.  But to have it inside a bank?  You all know I've been a huge fan of Tall Paul for a long time and in this case I think he's right again.  The disappearance of "Delta One" trading desks will never be mentioned in the history books as one of the great losses of mankind.  They benefit only the traders and the managers at bonus time, if they get it right, but the risks are huge either from a rogue or a bad bet.  One might want to keep in mind that a rogue is a good trader who made a bad bet and doubled-down to set it right.    Society could care less.  Kinda like the good banker who believed, "Countries don't go broke."  Good morning, Athens.

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