Can Deutsche now claw back the bonuses given to him earned through his manipulation of Euribor? Are they going to? Or will he be fined an equal
amount?
I highly doubt Deutsche Bank wants that kind of attention. What if he starts arguing Deutsche Bank knew about it more then they previously said after they start going after him?
Why would they take back the bonuses when they profited from his actions? It's highly doubtful that the total fines imposed on Deutsche Bank exceed the total profit they gained, and given the size of his bonuses, he likely made them a lot of money all said...
i mean the sharing of profits between business and labour. the finance world is a massive outlier in this - it's is striking. And yes calling someone with 120M bonus "labour" as if they were a blue collar steel worker is silly, but it's accurate...
Is it clickbaiting or just misplaced hero-worship to call this the "fall" from "star trader" to criminal? Seems to me more like one minute he's a crook who hasn't been caught, the next he's a crook who's been caught. Rather than causing even a second of cognitive dissonance it should simply set you to scanning all his other accomplishments for fraud as well.
I think it's probably along the lines of: Before your malfeasance is found out and punished, you're a rockstar. Some rockstars are rockstars, and some are yet to be caught criminals. You won't always know beforehand.
And in a story like this that covers years of time it's not that unusual to describe the person as how they're perceived at the time in points of the story. It gives you a sense of the journey and how far they've fallen. "Crook in jail" doesn't carry quite the same gravitas as "wealthy banker on top of the world, definitely one of the 1%, now fucking fucked".
If anything it's clickbait only because it suggests the inevitable consequences will be serious. But who's betting for pretty weak prison sentence and he'll still be a multi-millionaire at the end of it all?
For Bezos, anticompetitive moves and very bad working conditions in some part of the company can be seen as crime by some people. No idea for Warren Buffet.
Google: anticompetitive practices, and the no poach agreement with Apple, Adobe, and Intel, off the top of my head.
Berkshire Hathaway was investigated for insider trading, resulting in Sokol’s resignation. Four former execs of BK’s General Re were found guilty of fraud.
> anticompetitive practices, and the no poach agreement with Apple, Adobe, and Intel, off the top of my head.
Almost all of those were done (temporarily) well after the fortunes were made.
Any examples you'd find I'd bet 95-99% were either the result of subsequent monopoly or as a result of government intervention either directly/indirectly benefiting them.
The 1-5% which weren't were likely punished. As the examples you mentioned were...
Sokols alleged insider trading involved stealing from Buffett. The Gen-Re execs weren’t found guilty, they plead guilty to minor counts of “fraud” after 12 years of grinding prosecutions and after they won several trials. Their crime was claiming to not know that AIG was going to use a profitable insurance contract Gen Re sold it to commit fraud. Gen Re never committed any fraud itself.
And Buffett was the richest man in the world well before either of these incidents.
Obvious criminality is not the same as obvious non-criminality.
You seem to be getting pretty worked up about this. The reason I don’t think the claim is obviously untrue is because I believe the magnitude of wealth involved, and often the scale of operations/actors, increase the probability of actions ranging from morally dubious but legal to outright criminal.
Per one of your other replies, we can quibble about the quote and what “behind every great fortune” means, exactly. You seem to be interpreting it to say that criminal action was a major factor responsible for the fortune, while I interpret it more loosely, the impact being irrelevant.
At any rate, I doubt the quote is meant to be taken strictly literally, and is more of an aphorism.
A fair bit of the point (and much the discussion of the quote's origins, which, again, I've rather pointedly linked) is the notion that the crime is not obvious, but of an undiscovered crime. As in the (translated) version of an actual Balzac version of the concept:
"The secret of a great success for which you are at a loss to account is a crime that has never been found out, because it was properly executed."
The concept is metaphorical, but it is not without any merits. And there may be other elements, either on their own or in addition to, that crime, which accounts for the wealth. Blind luck (or some measure of luck-and-skill) being among the less-accounted-for in many instances.
As to the list you present, I see among the several monopolists, operators in corrupt countries, gambling and gaming, coal and fossil fuels industries, advertising, and financial services, numerous fairly obvious crimes, in at least a moral sense, though yes, also, quite often literally criminal.
Traders are always looking for an edge. It's a bit presumptuous to think that all of his successes have been from this one illegal act, or other illegal acts.
My understanding is that the EURIBOR rate is an index that attempts to track the overnight interest rate that banks lend to each other at. These numbers are not public (the trades are made "over the counter"), so the body that sets the rate relies on information given to them by the banks. To calculate it, they do something like taking the median of all submissions.
At the same time, there is a lot of money riding on what the EURIBOR is at any time. The allegation is that this guy (and others) conspired to change their submissions to change the listed EURIBOR and make a lot of money.
I'm no expert though, and I could be wrong in my understanding.
Essentially (for example) the trader has a position that makes money if LIBOR goes down, so he calls the LIBOR submitter at his bank or someone he knows through contacts at another bank and says "hey it would be nice if your 3 month LIBOR could go from .7% to .65%", and the submitters who were themselves often low level functionaries just did it as a favor. Though they could only move it within bank guidelines so the profits made were not huge in any case.
I would suggest anyone interested in learning more about this to watch the BBC documentary The Big Bank Fix. It shows how these traders didn't do anything wrong.
The documentary shows how there were some really high level bank executives involved in libor frauds and that was getting media attention. Therefore, SFO met with banks and eventually, based on documents provided by the banks, decided to prosecute simple traders.
The reason traders have been sent to trial has nothing to do with the actual libor fraud carried out by executives. But since it is still about libor, has been sold to the media as the libor trial. Start and end date of the "crime" have been carefully chosen to not include evidence of the executive crimes (such as the phone call shown in the documentary). SFO experts have admitted during trial to lie in order to convict these traders.
Many of these traders were in their early 20s when the alleged crime happened. Germany, France, and EU have already said that it was not a crime at the time and rejected extradition.
I rarely felt as sad as after watching that documentary.
I read The Spider Network (fantastic look into how bank prop trading worked) and came to mostly the same conclusions. The idea of just prosecuting "rouge traders" is a complete injustice, as trying to adjust the rate submissions was apparently a widely known practice in banks. Tom Hayes, a mildly autistic savant just doing what everyone else was got 14 years, essentially a murder sentence in the UK. Fire the traders and maybe ban them from trading for a few years.
Of course the investing public with LIBOR based loans wants blood, and they just believe the headlines that a few traders "conspired" to fix rates. In reality the entire system was built on a profoundly flawed incentive structure of trusting banks with positions that profit from LIBOR moves to not alter LIBOR submissions to make themselves money. But LIBOR is too big to fail at this point so they chose to scapegoat a few traders instead of admitting the whole system is corrupt.
Can someone provide some insight on the best way to get into the industry as a Trader?
Can you still enter that industry when you are in mid-career?
I would think that since trading requires a lot of patience, and analytical skills, that something like this is better suited to more mature people. This is probably not something that you would entrust to a young early 20s person.
This guy's background says he joined as a quantitative analyst after college. And then rose to the role of a trader.
Dodd-frank means that prop trading isn't really a thing the way it used to be. Most trading in banks is now flow trading: the bank will take one side of a trade for a client in exchange for a fee. They'll then make sure their book is hedged so they don't have meaningful market exposure.
Asset managers still make big, directional bets though. Exactly how decisions are made varies from place to place, but decision makers will typically be older and have plenty of experience. Asset managers get lots of due diligence questions so no-ones handing millions out to a junior in their early twenties.
With regard to entering the industry, it's pretty hierarchical, and can be siloed: techies do tech, traders do trading, and there's not much crossover.
The most reliable way of entering the industry is to get on a graduate program and work your way up. Failing that, a quantitative PhD might get a hedge fund or HFT interested.
Do be aware that while it's a ticket to a comfortable upper middle class life, the salaries are not what they once were. Seven-figure bonuses are pretty much a thing of the past for most front office staff.
> With regard to entering the industry, it's pretty hierarchical, and can be siloed: techies do tech, traders do trading, and there's not much crossover.
Not really true. It's true that there are software roles that don't interact with strategy much, and often traders/quants that don't do much proper software. But in many places the line can be very blurry.
> The most reliable way of entering the industry is to get on a graduate program and work your way up. Failing that, a quantitative PhD might get a hedge fund or HFT interested.
HFTs and hedge funds all hire of plenty of new grads and experienced-but-not-PhDs doing quant/trading style work - Hudson River, Jane Street, Two Sigma, Tower, I think Citadel all will.
As a little side note, Libor is so idiotic that I don't understand how the general public allow it to underpin most of the financial products they buy. We need a bit of a revolution in the rates/banking space. The current financial system is inherently unstable, frought with moral hazard and serves the rich to make them richer still.
Maybe one solution is to actually start teaching some simple economics at school. The curriculum in the UK conveniently skips over the details of banking. If people knew how it really works, I'm certain they would feel taken advantage of.
47 comments
[ 2.6 ms ] story [ 105 ms ] threadAnd in a story like this that covers years of time it's not that unusual to describe the person as how they're perceived at the time in points of the story. It gives you a sense of the journey and how far they've fallen. "Crook in jail" doesn't carry quite the same gravitas as "wealthy banker on top of the world, definitely one of the 1%, now fucking fucked".
If anything it's clickbait only because it suggests the inevitable consequences will be serious. But who's betting for pretty weak prison sentence and he'll still be a multi-millionaire at the end of it all?
https://quoteinvestigator.com/2013/09/09/fortune-crime/
J.K. Galbraith: the notion of the "bezzle", from The Great Crash: 1929:
https://www.goodreads.com/author/quotes/23458.John_Kenneth_G...
http://www.users.globalnet.co.uk/~rxv/business/bezzle.htm
It's a great sounding quote, but obviously entirely untrue.
That doesn't make it a crime. But it does make those people less credible.
Berkshire Hathaway was investigated for insider trading, resulting in Sokol’s resignation. Four former execs of BK’s General Re were found guilty of fraud.
Almost all of those were done (temporarily) well after the fortunes were made.
Any examples you'd find I'd bet 95-99% were either the result of subsequent monopoly or as a result of government intervention either directly/indirectly benefiting them.
The 1-5% which weren't were likely punished. As the examples you mentioned were...
And Buffett was the richest man in the world well before either of these incidents.
Care to share a few of them which generated their wealth?
You seem to be getting pretty worked up about this. The reason I don’t think the claim is obviously untrue is because I believe the magnitude of wealth involved, and often the scale of operations/actors, increase the probability of actions ranging from morally dubious but legal to outright criminal.
Per one of your other replies, we can quibble about the quote and what “behind every great fortune” means, exactly. You seem to be interpreting it to say that criminal action was a major factor responsible for the fortune, while I interpret it more loosely, the impact being irrelevant.
At any rate, I doubt the quote is meant to be taken strictly literally, and is more of an aphorism.
"The secret of a great success for which you are at a loss to account is a crime that has never been found out, because it was properly executed."
The concept is metaphorical, but it is not without any merits. And there may be other elements, either on their own or in addition to, that crime, which accounts for the wealth. Blind luck (or some measure of luck-and-skill) being among the less-accounted-for in many instances.
As to the list you present, I see among the several monopolists, operators in corrupt countries, gambling and gaming, coal and fossil fuels industries, advertising, and financial services, numerous fairly obvious crimes, in at least a moral sense, though yes, also, quite often literally criminal.
Everybody lighten up, it's an aphorism.
He was monitoring basis points to attempt to capitalize on it. But the SEC accused him of manipulating the markets?
I don't think he hacked any systems doing this. I don't think he created a fraudulent pyramid scheme here.
Did he violate some kind of public trust?
At the same time, there is a lot of money riding on what the EURIBOR is at any time. The allegation is that this guy (and others) conspired to change their submissions to change the listed EURIBOR and make a lot of money.
I'm no expert though, and I could be wrong in my understanding.
The documentary shows how there were some really high level bank executives involved in libor frauds and that was getting media attention. Therefore, SFO met with banks and eventually, based on documents provided by the banks, decided to prosecute simple traders.
The reason traders have been sent to trial has nothing to do with the actual libor fraud carried out by executives. But since it is still about libor, has been sold to the media as the libor trial. Start and end date of the "crime" have been carefully chosen to not include evidence of the executive crimes (such as the phone call shown in the documentary). SFO experts have admitted during trial to lie in order to convict these traders.
Many of these traders were in their early 20s when the alleged crime happened. Germany, France, and EU have already said that it was not a crime at the time and rejected extradition.
I rarely felt as sad as after watching that documentary.
Of course the investing public with LIBOR based loans wants blood, and they just believe the headlines that a few traders "conspired" to fix rates. In reality the entire system was built on a profoundly flawed incentive structure of trusting banks with positions that profit from LIBOR moves to not alter LIBOR submissions to make themselves money. But LIBOR is too big to fail at this point so they chose to scapegoat a few traders instead of admitting the whole system is corrupt.
I guess aiming big is the way to go in the finance world.
Can someone provide some insight on the best way to get into the industry as a Trader?
Can you still enter that industry when you are in mid-career?
I would think that since trading requires a lot of patience, and analytical skills, that something like this is better suited to more mature people. This is probably not something that you would entrust to a young early 20s person.
This guy's background says he joined as a quantitative analyst after college. And then rose to the role of a trader.
Asset managers still make big, directional bets though. Exactly how decisions are made varies from place to place, but decision makers will typically be older and have plenty of experience. Asset managers get lots of due diligence questions so no-ones handing millions out to a junior in their early twenties.
With regard to entering the industry, it's pretty hierarchical, and can be siloed: techies do tech, traders do trading, and there's not much crossover.
The most reliable way of entering the industry is to get on a graduate program and work your way up. Failing that, a quantitative PhD might get a hedge fund or HFT interested.
Do be aware that while it's a ticket to a comfortable upper middle class life, the salaries are not what they once were. Seven-figure bonuses are pretty much a thing of the past for most front office staff.
Not really true. It's true that there are software roles that don't interact with strategy much, and often traders/quants that don't do much proper software. But in many places the line can be very blurry.
> The most reliable way of entering the industry is to get on a graduate program and work your way up. Failing that, a quantitative PhD might get a hedge fund or HFT interested.
HFTs and hedge funds all hire of plenty of new grads and experienced-but-not-PhDs doing quant/trading style work - Hudson River, Jane Street, Two Sigma, Tower, I think Citadel all will.