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New Fed Policy: ‘No Rogue Trader Left Behind’

.French Bank Says Rogue Trader Lost $7 Billion

The bank [Société Genéralé] uncovered his scheme last weekend. It was selling off its positions during Monday’s market turmoil in Europe that led, in part, to the Federal Reserve’s history-making rate cut of three-quarters of a percentage points.

—The New York Times

That’s right: it turns out that at least a part of the reason Ben Bernanke’s Federal Reserve Board hit the panic button this week was the forced selling of shares by a bank closing out the positions of a single, errant, 31 year old trader.

So, you see, Citibank and Merrill combined can lose $20 billion in one quarter with no response from the Fed…but stocks start getting hit one weekend because a guy in France lost $7 billion over the course of a year’s worth of bad trades, and Bernanke & Friends snap into action immediately.

Well then, now that the Fed appears to be responding strictly to stock market jitters as opposed to, oh, inflation and other monetary stuff, what’s next?Will the Fed be cutting rates every time a trader loses money?

In order to be prepared for that eventuality, we here at NotMakingThisUp are happy to provide a handy set of headlines designed to make it easier for newspaper editors and fellow bloggers to respond to whatever move the Fed makes next.

Simply cut-and-paste according to the situation:

Rogue Trader Loses Billions on Market Open; Bernanke Cuts 75 Basis Points, Urges Calm; Stocks Firm

Rogue Trader Makes Billions Back in Early Trade; Bernanke “Not Sorry About, Won’t Take Back” Rate Cut; Stocks Rally

Rogue Trader Losing Millions Again; Bernanke Cuts Another 5 Basis Points “Just in Case”; Stocks Steady

Rogue Trader Recovers Millions by Mid-Morning; Bernanke “Pleased”; Stocks Climb

Rogue Trader Now Down Slightly in Late-Morning Trading; Bernanke “Concerned”; Greenspan Consulted: Wall Street Cheers; Stocks Extend Gains

Rogue Trader Flattens His Book, Eats Lunch; Bernanke “Monitoring Situation”; Dow Steady

Rogue Trader Losing Again in Afternoon Trade; Bernanke “Anguished, Ponders Further Action”; Greenspan Pays Fed a Visit; Wall Street “Encouraged”

Rogue Trader Down $10 Billion into the Close; Bernanke Asks Greenspan to Assist, Weeps on Camera; Wall Street Elated: “Ben’s Found His Voice!” Stocks Soar

Rogue Trader Loses All; Bernanke Missing; Greenspan Declares “I’m In Charge Here”; Traders Hugging, Dancing in Wall Street, Say “We Knew It All Along!”; Stocks Up LimitAnd, finally:Greenspan Cuts Rates to Below Zero; Street Hails ‘No Rogue Trader Left Behind’ Policy; Errant Trader Makes All Back as Dow Jones Average Hits Infinity, Quits Bank to Start Hedge Fund; Bernanke, Britney Discovered in Vegas During ‘Lost Weekend’, Tells CNBC “I Can’t Believe How Much Things Cost.”

Jeff Matthews
I Am Not Making This Up

© 2008 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. Anyone buying or selling stocks on the basis of this commentary is making a mistake. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

6 replies on “New Fed Policy: ‘No Rogue Trader Left Behind’”

You know this meme is all over the place though I believe Mr. Ritholz really got it rolling. Two points:

1) believe the markets in Asia were down more and faster on our and Europe’s Su. to the point of possible implosion; unless of course it was another rogue pretending to be the first rogue.

2) does it matter – since we’re all empiricists and fact-based suppose the Fed hadn’t intervened ? In other words if the markets are headed down that hard in a general crisis situation does anybody care what triggered it ? More important to stop it before it gets out of control.

I do not believe that this was a “rogue” trader. In my opinion, it was a trader who broke explicit guidelines with management’s tacit approval as long as the trades were profitable. Once the trades turned sour, it was ALL his fault and no one in management could remember who hired him, much less what he looked like or did.

I’ve worked in too many financial institutions to believe that management didn’t know what was going on. Someone had to authorize the cash movements to settle the trades. A trader making 100k Euros per year does not have the clout to move that amount of cash.

i’m kind of a moron about this stuff, but when i heard about the foriegn markets getting pummeled as hard as they were, my first thought was “someone blew up”. i mean, if i can figure that out, why couldn’t the fed. and if, as “they” say, rate cuts take *six*months* to work their magic, why the ^%$& would it matter if the cut came last tuesday or on the 31rst?!?

whatever, “asian and european markets fell on fears of an american recession”, right?

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