Well it happened again and personally I don’t know how a company can lose $7.2 Billion dollars through one employee.  Especially after what we all learned from the Bearings Bank debacle.  I guess of you live long enough you will see companies do really stupid things and not learn from mistakes.

Bearings, a 100 year old British bank, was brought down by rogue trader Nick Leeson.  In 1995 trader Nick made $1.38 billion in unauthorized trades that brought Bearings Bank to its knees.  The bank was ultimately purchased by a Dutch bank for $1.   

This latest $7.2 billion loss by French bank Société Généralé who today find themselves with rogue junior trader Jérôme Kerviel at the helm of a string of bets that at one time had $50 billion of their funds on the table is troubling.  When the dust settled their final loss was $7.2 billion.  I can almost hear their sighs of relief that the loss was smaller than originally thought.  

My question is, where were the internal checks and balances that should have prevented a trader with a gambling habit from running wild?  How does it get so far out of hand?  It is especially of concern to me since I recently watched the movie “Rogue Trader” starring Ewan McGregor.  When Nick Leeson brought down Bearings bank I was a bank officer at what is now J.P. Morgan Chase bank.  As a member of the banking establishment I listened and watched as my bank made decisions and added controls so that it wouldn’t happen to us.

Interestingly, trader Jérôme Kerviel scoffs at the bank for missing the elementary sign that something is wrong.  He only took four days off last year.  “It is one of the first rules of internal controls:  a trader who does not take vacations is a trader who doesn’t want his books to be seen by others” he said.  It seems he considers them responsible for not executing the checks and balances created to prevent just this behavior.

Leeson wrote the best selling book “Rogue Trader: How I brought Down Bearing Bank and Shook the Financial World.”   His life was made into the above mentioned movie, he did his few years in prison and today he is a highly paid public speaker.  He’s now written another book titled “Back From the Brink: Coping with Stress.”  Bringing others to financial ruin apparently has its rewards.

The way I see it, this is a wake up call for us when we decide where to put our 401K or savings.  These people are using our funds to do the trades.  They are responsible and have a fiduciary duty to ensure our life savings are protected and that our pot of gold grows.  We should be ever vigilant about the trustees we put our money with.  

I recommend that you watch the movie “Rogue Trader” then contact your 401K people and make sure your savings are safe.  Banks only create money by using our money.  How well are they watching over yours?  Is someone minding the store are are the checks and balances crumbling as I write this?

It seems the banks have learned nothing since 1995.  Have you?