WHAT DO THE BANKS THINK THEY ARE DOING? By CAMERON DUODU
They are taking the whole world for a ride, that’s what the banks are doing.
You think of a bank as a safe institution in which you put your money, and it is there waiting for you whenever you need it. If you’re lucky, the sum you put in the bank may even have increased – due to the fact that some banks now pay interest on current accounts. If you put the money in a savings or a deposit account, of course, then you will definitely get interest on it.
Then we began to hear stories about how some banks have turned themselves into “casinos” and use customers’ money to “gamble” on currencies, commodities (such as cocoa), and “derivatives” as well as ‘collaterised debt obligations” or “CDOs”.
Now when you and I began life, gambling was frowned upon by almost every person of integrity. And banks were supposed to possess so much integrity that if your bank manager spotted, from the movements of money in and out of your account, that you might be gambling, or otherwise taking risks with your income, he would call you and read you the riot act. Which, in this case, meant him warning you that if you gambled away the money which should have gone into paying your rent, he wouldn’t give you an overdraft. He would bounce your cheque to your landlord. And you would be evicted.
If banks were supposed to help us live stable lives, how could THEY be gambling? Well, they have been doing it. You probably heard of Bear Stearns Bank and Lehman Brothers in 2008-9. Of Goldman Sachs. AIG. Barclays. J P Morgan. Northern Rock. Royal Bank of Scotland. Lloyds TSB. Citibank.
Almost all of them have been stricken by a bug called “bangambling” and lost so much money that the governments that should have been going to them to borrow money, had to infuse money into them. And I am talking money: it was so much that the governments dared not call it “money”. Instead, they called it “quantitative easing”.
We simple-minded folk thought that if the banks had needed to be rescued by the governments of the world, then they would feel so disgraced that they would never “bangamble” again. But we were joking. Having learnt that the governments of the world were afraid of them, because many of the banks were deemed to be “too big to fail”, they went right back into their “casino-banking” mode. And sure enough, very soon, they were paying back the money the governments had “quantitatively-eased” on them. They laughed — all the way to the Bank of England and the Fed.
But their hubris was ill-judged. For — the inevitable happened again. A trader of the French bank, Societe Generale, known as “Jerome”, cost the bank over $5 billion in unauthorised trading or gambling. This was in spite of the fact that a huge amount of publicity had been given to the activities of 14 bank traders who, in the past two decades, have frittered away $20 billion in gambles that did not pay off. And that $20 billion number is only what has been disclosed! We do not know whether some have been hidden in — or absorbed into — false balance books.
Britain, in particular, was scandalised when it realised that it had been possible for a single rogue trader, Nick Leeson, a futures dealer based in Singapore, had incurred a loss of $1.4 billion in deals in derivatives which had triggered the collapse of Britain’s “venerable” Barings Bank. (“Venerable” because it counted Her Majesty Queen Elizabeth The 2nd among its customers!)
And then, last week, another banking scandal rocked Britain. It was reported that Kwaku Adoboli, a 31-year-old Ghanaian employed by one of the banks favoured by the world’s corrupt dictators, a Swiss bank called Union Bank of Switzerland (UBS) had incurred a $2 billion loss for his employers. By the end of the week, the size of the loss had increased to $2.3 billion.
Apart from the secret, wicked pleasure of learning that a Swiss bank had lost some of the money it had secretly stolen from corrupt 3rd world leaders who died with their boots on, you ask yourself, “Ah?” How can a 31-year-old man who only joined the bank in 2006, have managed to be entrusted with such a huge sum as 2,300,000,000 dollars?
But that is not the end of the story, though! If he made a loss of $2,300,000,000, then it meant that the sums that had passed through his hands were in the region of $50,000,000,000 to $100,000,000,000!
That is because, in the type of trading he was doing — currencies — the rise or fall of the exchange rate is not normally precipitous – if it rises or falls even 1% in a single day, then panic buttons will be pressed. So the size of losses or profits is never higher than 2 or 3% of the sum used in buying or selling “positions”. To incur a $2.3 billion loss, a stupendous amount of money would have been betted. By a young man who knows how to buy kenkey and fish, kelewele or waache from the streets of Tema! Yiee! Mini sane ner?
A friend of mine who is knowledgeable about these matters tells me that because of the size of the numbers involved, he doesn’t think Kwaku Adoboli could have been doing it all by himself.
“He is obviously being used as a scapegoat. If he had made a profit, we would never have heard of it. And the fact that he had been allowed to continue doing these things since 2008, shows that he was very good at it. His bosses have probably been collecting enormous bonuses from his activities, and were hoping to collect some more. But, even whiz-kids like him are subject to the laws of gambling: you win some and you lose some. He lost some — big time. And he’s being thrown to the wolves. Because in the ruthless world of banking, success has many fathers, but failure is attributed to only one “rogue trader”.
Another bank insider said: “No matter how much beef you add to the compliance departments, and how big a stick the regulator wields, you have to expect there will be at least one guy who thinks he can outwit the system.”