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9/21/2011

The UBS Circus in town

The loss by the trader Kweku Adoboli, has ballooned to $2.9b. GIC is demanding that UBS takes firm action to deal with the problem. The CEO, Oswald Gruebel is asking the board of directors for permission to restructure the banks investment arm. This is like after Mas Selamat had escaped and everyone responsible was calling for corrective actions when the actions should have been taken before it happened.

In the case of banking frauds from rogue traders, it is not something new. It happened and happened and happened. Why are banks paying millions and millions for assholes to run them and allow such a simple crime to be repeated over and over again? It beats me.

The root of the problem runs deeper in the whole financial industry. It is all grounded on greed, to make quick billions to pay themselves. The banks were once an icon of stability and security, rock solid. Banks were conservative, managing wealth. Now banks want actions too, to make quick billions, to pay big bonuses. So engaging in gambling is just another means to achieve such an objective. No, they don’t gamble, they invest in risky products, invented risky products, trade in risky products.

We have seen Barings Bank at ground zero, and a few more strong and solid American financial institutions on the ground too. No one is taking heed. When banks and financial institutions are all gambling in risky products, it is only a matter of time when they go under. This will include DBS, UOB and OCBC, if they are not careful. It will include GIC, Temasek and the SGX. With our SWFs placing their big chips everywhere in such a risky time, a financial collapse could wipe off everything.

The financial institutions and industry have gone far too deep into the abyss of gambling. They don’t even see the difference. It is like drug addicts or the drunkards, without knowing what is happening to them. Only the people watching from outside the fishbowl can see clearly what is happening.

Gambling, taking high risk, conflict of interests, are now part and parcel of the financial industry. More will fail, and fall real hard, if the real problem is not treated. The greed to be big, to be a world player, comes at a big cost, while the ego gets bigger. All cautions were thrown out of the window. Selling of toxic products is fair game, creating an unfair system is fair game, conflict of interests, trading against clients, against small investors is fair game. Making small innocent investors to gamble in useless derivatives is fair game. Paying hundreds of millions of debt of badly run companies, like Manchester United, is fair game.

The road down is very slippery. When will the banks be stopped from risky trading and gambling? When will the financial system be overhauled and toxic products be stopped?

5 comments:

Anonymous said...

Put it this way, if Kweku Adoboli had been making obscene profits from those investments, I think the Directors would still be closing both eyes, rogue or not, and let the show carry on as it is.

And put it another way, they would probably continue to reward him tens of millions in performance bonuses and praise him for his foresight.

Hehe, corrective action my foot. These people never learn their lessons. There is too much greed wallowing throughout the financial system to warrant corrective actions.

Chua Chin Leng aka redbean said...

Why were banks so safe in the past? They were family banks, run by family members. There was ownership. The families own their banks.

With professional managers, like MNCs, it is as good as no owners. The managers are the defacto owners and happily pay themselves any amount they could. And the best justification, take big risk, when the gamble won, claim credit and pay themselves anything they want.

Even a country can go that way when there is no ownership. That is why I am saying that selling countries is not going to be difficult and will happen, or already happening, depending on the scale and definition.

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