Wall Street's great scape­goat hunt

The Pak Banker - - Front Page - Wil­liam D. Co­han

WALL Street has in­creas­ingly taken up its old habit of blam­ing ju­nior bankers and traders for what goes wrong. This is par­tic­u­larly trou­bling be­cause Wall Street is sim­i­lar to the mil­i­tary: There is no up­side for any­one work­ing in fi­nance to do any­thing but to fol­low the or­ders given by the bosses. The idea of a "rogue trader" is re­ally a myth. The goal at ev­ery firm is al­ways to make more money in any way that is legally de­fen­si­ble -- by sell­ing more mort­gage-backed se­cu­ri­ties, by do­ing big­ger and big­ger merg­ers-and-ac­qui­si­tion deals or by mak­ing a larger and larger bet on the di­rec­tion of an ob­scure debt in­dex.

When things go well -- the firm lands a big un­der­writ­ing or a high-pro­file merger or ex­e­cutes a prof­itable trade -- there is no short­age of peo­ple around to claim credit. Of course, when some­thing goes ter­ri­bly wrong -- see "Whale, Lon­don" or "Syn­thetic CDO, Aba­cus" -- the se­nior ex­ec­u­tives dis­ap­pear from the scene faster than cock­roaches when the light is turned on. In re­turn, em­ploy­ees get paid more work­ing on Wall Street -- with­out putting any per­sonal cap­i­tal at risk -- than they can at al­most any other job on the planet. This is not a sub­ject open to de­bate on Wall Street. This is the way it is. If you don't like that bar­gain, you leave. (Sorry, Greg Smith.)

And yet, we are now sup­posed to be­lieve that many things that went wrong lead­ing up to the fi­nan­cial cri­sis were caused by a hand­ful of ju­nior bankers and traders sup­pos­edly act­ing on their own. Gold­man Sachs Group Inc. (GS) and the Se­cu­ri­ties and Ex­change Com­mis­sion continue to blame Fabrice Tourre, a for­mer Gold­man Sachs vice pres­i­dent, for the botched man­u­fac­tur­ing and sell­ing of the Aba­cus 2007-AC1 syn­thetic col­lat­er­al­ized debt obli­ga­tion. The firm paid the $550 mil­lion -- one of the largest fines in Wall Street his­tory -- to avoid an SEC civil suit. Tourre, mean­while, faces a civil trial set for July. While Gold­man Sachs pays his le­gal bills, he is study­ing for a doc­tor­ate at the Univer­sity of Chicago and do­ing hu­man­i­tar­ian work in Rwanda. (Any­one want a Free Fab! T-shirt?)

This month, the Com­mod­ity Fu­tures Trad­ing Com­mis­sion zapped Matthew Mar­shall Tay­lor, an­other for­mer Gold­man Sachs vice pres­i­dent, for al­legedly con­ceal­ing an $8.3 bil­lion trad­ing po­si­tion in 2007 that cost the com­pany $119 mil­lion (the losses were hard to see in a year when Gold­man Sachs made $17 bil­lion in pre­tax profit). The CFTC al­leged that Tay­lor fab- ri­cated trades and then ob­structed Gold­man Sachs's "dis­cov­ery of his scheme" by pro­vid­ing "false, mis­lead­ing or de­cep­tive in­for­ma­tion and re­ports."

No so fast, says Tay­lor's at­tor­ney, Ross In­telisano. His client "stren­u­ously de­nies all of the al­le­ga­tions"; he never "in­ten­tion­ally en­tered 'fab­ri­cated trades'"; and it was Tay­lor who brought the losses to Gold­man Sachs's at­ten­tion, not the other way around, In­telisano said in a state­ment. Is what we have here a fail­ure to su­per­vise?

Then there is Kweku Adoboli, the for­mer "rogue" trader at UBS AG (UBSN), who is on trial in Lon­don for sup­pos­edly los­ing the bank $2.3 bil­lion with­out any of his su­pe­ri­ors know­ing. If found guilty, he could spend 10 years in prison.

His lawyer, Charles Sher­rard, used metaphor to make an in­sight­ful point about Wall Street cul­ture. In clos­ing re­marks, Sher­rard com­pared his client to Spar­ta­cus, the slave-turned- gla­di­a­tor played by Kirk Dou­glas in the 1960 movie. Re­mem­ber the scene in which Spar­ta­cus steps up to take the blame for the slave re­bel­lion, but in his de­fense his fel­low gla­di­a­tors also claim to be Spar­ta­cus so that no one can be blamed in­di­vid­u­ally. Well, things turn out dif­fer­ently on Wall Street: Three of Adoboli's co­work­ers saw fit to tes­tify against him. "Mr. Adoboli stands up and says 'I am Spar­ta­cus' and the other three stand up and said 'Yes, that's him!'" Sher­rard told the jury.

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