The shocking news of a UBS rogue trader losing the Swiss bank whopping $2 billion left many scratching their heads wondering ‘how this could possibly happen?’Rolling Stone’s Matt Taibbi says the reason it happened is banks have been “lying their asses off over the last three years, when they all pledged to pull back from risky prop trading.”
The root of the problem, he explains, is investment banker’s brains are not wired for dull commercial bank business of taking consumer deposits and making conservative investments.
In fact, investment bankers by nature have huge appetites for risk, and most of them take pride in being able to sleep at night even when their bets are going the wrong way. If you’re not a person who can doze through a two-hour foot massage while your client (which might be your own bank) is losing 10 thousand dollars a minute on some exotic trade you’ve cooked up, then you won’t make it on today’s Wall Street.
At one time commercial banks and investment banks had to remain separate entities as mandated by the Glass-Steagall Act of 1933. Today, however, because of Gramm-Leach-Bliley Act of 1998 they can be combined.
Taibbi said the marriage of investment banks and commercial banks including Salomon Brothers (now part of Citi), Merrill Lynch (Bank of America), Bear Stearns (Chase) have been disastrous.
“The influx of i-banking types into the once-boring worlds of commercial bank accounts, home mortgages, and consumer credit has helped turn every part of the financial universe into a casino,” he writes.
What’s more is says he hates the term “rogue trader” that’s been tossed around by the financial media today.
They’re not “rogue” for the simple reason that making insanely irresponsible decisions with other peoples’ money is exactly the job description of a lot of people on Wall Street. Hell, they don’t call these guys “rogue traders” when they make a billion dollars gambling.
The only thing that differentiates a “rogue” trader like Barings villain Nick Leeson from a Lloyd Blankfein, Dick Fuld, John Thain, or someone like AIG’s Joe Cassano, is that those other guys are more senior and their lunatic, catastrophic decisions were authorised (and yes, I know that Cassano wasn’t an investment banker, technically – but he was in financial services).