Photo: Flickr / vl8189
Christopher Dickey of Newsweek and The Daily Beast picked up on an interesting trend that’s been apparent since 2008—whenever a few billion dollars is lost at a bank or a financial firm, someone French seems to end up being involved.Most recently: Bruno Iksil, the London Whale of JP Morgan’s $2 billion trading fiasco.
The evidence says it all—Jerome Kerviel, a rogue trader at Societe Generale, nearly bankrupted the company. Goldman Sachs was forced to pay more than half a million dollars related to Fabrice Tourre’s work in 2010. And most recently, Iksil’s huge positions resulted in the tremendous loss of JPMorgan’s CIO unit.
The correlation appears to be tied to the high amount of French quants in the industry. According to Dickey, an estimated one in three quantitative analysts, otherwise known as quants, were from France at the time of the 2008 crisis.
It’s also tied to famous French maths professor Nicole El Karoui—her theories and methods, which were taught in French universities, were being misused. From Newsweek—
The equations [El Karoui] had developed and taught could work well (though not infallibly) as a hedge against market risk. Instead, however, they were being used to create exotic financial products that were sold to investors and speculators at enormous prices. “Some clients aren’t mature enough to understand the risks of products that are too complex,” the stochastic-calculus schoolmarm told The Wall Street Journal in 2006. “It’s better to do business with those people responsibly, either taking the time to teach them or selling them a less complex product.”
Obviously, not all French quants should be considered at risk of a big blow up.