Could I have that without the chips? Well, no, you can’t, actually.

A lengthy piece by Robert Peston on BBC News last night about the SocGen affair (rogue trader loses £3.7 billion on derivatives trades) illustrated by an extended visual analogy about roulette and gambling chips.

No FS client has ever bought an ad with a visual about gambling in it, no matter how neat the analogy, because at some instinctive level they know that it’s a PR disaster waiting to happen.  That being so, you might expect me to bemoan Peston’s approach.  But honestly, what do you expect?  If you run France’s second-biggest bank in a way that allows a 31-year-old with two years’ experience to bet 50 billion euros of your money on the options market, then an analogy about roulette is about the best you can hope for.  An analogy about the Keystone Cops, or a hospital for the criminally insane, or an old-fashioned Brian Rix farce, would be amply justified.

Incidentally, my mother, who knows about as much about derivatives trading as the Keystone Cops (or indeed the senior management of Soc Gen, ha ha) made a good point that I haven’t seen made elsewhere.  If SocGen are down £3.7 billion, presumably one or more other banks are up by the same amount.  If M. Kerviel was stepping far beyond his authority in making these trades, are they actually legal?  If a cashier in a High Street branch decided to give the money in the till to his or her customers, then legally the bank would be entitled to ask for it back.  (Getting it back might be another story, of course.)  Obviously the benefitting banks acted in good faith, but that’s not the point. If I buy a car that turns out to be stolen, then I have to give it back.  Doesn’t caveat emptor apply?

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