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Innovation/Global Crisis Blog

Delta Force: But This One Kills Good Guys, Not Bad Guys

By Shlomo Maital  

    The arrest of Kweku Adoboli revealed the following practice done by leading global banks, not only by Adoboli’s employer UBS, and its Global Synthetic Trading group.  It is called Delta One.  That’s what Adoboli was doing that lost $2 b.  Here is how this “Delta Force”  works.

   1. Offer clients guaranteed return on their investment.

  2.  Take their money.

  3. Invest their money in higher-risk securities, that pay higher returns, and call it a “synthetic trade” (“Hey, we kind of like maybe bought you 10,000 shares of IBM, but actually we put the money into 100,000 shares of Fly-By-Night Inc., don’t worry, it’s all perfectly safe and legitimate, trust us!”). 

  4. Pay the client their guaranteed return (5%) and pocket the difference between what you actually earned with their investment and what you paid them (20%?  40%).   Except, when you bet wrong and lose the whole wad. 

   Legal?  Sure.  Ethical?  I don’t think so.  More of the same fol-de-rol that ruined the global banks in 2007-8?  Worrisome, on the 3rd anniversary of the collapse of Leyman Bros? 

   Delta Force.  The new version. Brought to you by the same great guys that created Global Crisis 2007 – ? .  The original Delta Force killed bad guys.  This one kills good guys – or at least, their money (OUR money).   Even the original Delta Force wouldn’t be able to overcome the new Delta Force.  It’s armour-plated. 


Innovation/Global Crisis Blog

There is still “BS” in UBS – and “U” and I Are Paying For It

By Shlomo Maital 

 Kweku Adoboli

   First the facts.  A 31-year-old equities trader named Kweku Adoboli, originally from Ghana, son of a former UN official, was arrested by London police on charges of fraud.  Adoboli headed Global Synthetic Equities Trading for Union Bank of Switzerland (UBS), a huge Swiss-based global bank, in its London office.  He engaged in “rogue trading”, i.e. took unhedged positions that led to quickly-mounting losses, eventually totaling $2 billion.  The losses are large enough to cause UBS to report a loss this quarter.   Adoboli didn’t steal the money, he just made bad bets and UBS’s risk management system failed to stop him. 

   Now, my opinion.

   Don’t blame Adoboli.  Of course he’s culpable, and he’ll go to jail (the maximum sentence for his alleged crime is 10 years in prison).  Blame the system, blame UBS and other global banks.  They still don’t get it.  UBS paid Adoboli an estimated half million dollars a year (yes, you got it, $500,000), to a 31-year-old just a few years out of college.  Why would they do this?  Because as a trader he made money for UBS in speculative risky markets.  And UBS likes money and needs money, because frankly, as a conventional bank it is not doing so well.  So instead of doing the hard patient work of rebuilding its conventional banking business (taking deposits and lending money), UBS and other banks like it are still taking the short-cut, seeking short-term speculative profits gained by trading for its own account in volatile global markets.   Blame UBS. 

   How did Adoboli get away with it?  Simple.  He first worked in UBS’s “back office”, where traders are monitored, managed and controlled.  He knew the system.  When he moved up to become a trader, he knew how to get around the system and make trades that were unhedged and illegal, without the Bank knowing.  By the time it realized what he was doing, $2 b. went down the drain.

      “I need a miracle”, Adoboli posted on his Facebook page.    We all need a miracle.  We need a miracle for these global banks to stop at once the behaviors that caused the continuing global crisis.  Adoboli’s favorite book is Jordan Belfort’s The Wolf of Wall Street, whose tagline is “I partied like a rock star and lived like a king”.  So did Adoboli.  Don’t blame them.  Blame those who employ them and turn them loose. 

       America has passed legislation banning “nostrum” accounts (speculative trading by banks for their own profit, rather than on behalf of their clients).  Let Switzerland now do the same, and the European Union.  Don’t blame the traders. Blame the fat bankers who turn them loose.  Let UBS’s CEO join Adoboli in the jail cell, where they can discuss, for a decade, the moral implications of using the money of depositors and shareholders to take rash, speculative risks. 

       Guys!  It’s not your money!  It’s ours.  Stop this at once!

       In the name UBS,  there is still a whole lot of BS.  And “U” and I are paying the price. 

* Based on: The Times, “I need a miracle”, Sept. 16, 2011, by Katherine Griffiths, David Brown, p. 1.

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
September 2011
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