Most of the financial news stories of the prior week focused on the bloodbath that hit the world’s stock exchanges as the current Sub-Prime/Alternative-A loan debacle continues to unwind. The US markets (closed on Monday for the observance of the Martin Luther King holiday) seemed to get a get a temporary pass from a week of otherwise global carnage. Was it the FED’s emergency rate cut of .75% and all the MEGA media hype surrounding proposals for some “major” $600 windfall for each US taxpayer (“maybe” materializing three to four months down the road) that spared only those exchanges in North America’s Eastern Standard Time Zone from the massive bloodletting? I don’t think so!
That a solitary 31-year-old, lower-level investments trader at this huge financial institution could pull off such a devastating illegal pattern of activities for almost two years flies in the face of all logic. Somewhere along the line, one would presume that whistles, sirens and red flags would have been triggered, and the rogue’s activities halted. Any comprehensive and working system of internal controls, checks and balances, and safeguards would have precluded this from continuing beyond a few weeks given the dollars (make that EUROs) involved. Such intervention apparently did not happen. Was anyone really minding the store? It doesn’t look like it.
It would appear that the individual in question somehow managed to completely circumvent at least five distinct levels of controls and firewalls. How was this even possible? How would he be privy to the user IDs and individual passwords/codes for multiple other individuals, at multiple workstations, in multiple departments and locations? Given the amounts and number of transactions, were there no supervisory approvals and co-authorizations simultaneously required? Or verified?
It is just too convenient to saddle one rogue individual at one institution as some isolated incident in the unfolding drama of the worldwide breakdown of our financial system network. I’m just not buying it. Who will be next? For how big a hit? And...who will be ultimately tapped to “cover” the loss(es)?
I’m Fred Cederholm and I’ve been thinking. You should be thinking, too.
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This story was published on January 28, 2008.