(13b) The wrongs within banks.

It seems Mr Kweku Adoboli, originally from Ghana, was crying in October while he was giving evidence in an English court. In November, he was sentenced to seven years in prison for fraud tied to a $2.3 billion loss, the largest from unauthorised trading in U.K. history. The bank was later fined 29.7 million pounds ($47.6 million) by a U.K. regulator for weaknesses in management systems and internal controls that allowed Mr Adoboli to make risky trades. A few of his direct colleagues and manager also left or were fired by USB because of their incompetence as they didn't see what was going on.

I read Mr Adoboli and his fellow trader, Mr Hughes, aged respectively 27 and 24 years, were in charge of a $50bn portfolio by the bank UBS. And this without previous experience. In comparison, I was allowed to spend a few thousands of pounds in a previous job, or I had to ask permission from my boss because maybe money was needed for something more urgently, and this forced us to think about what we were doing so we would not waste money (of course, this will be seen by some as weakness for having so little responsibilities but I took responsibilities for what I was allowed to spend so my work could continue).

On one hand, I feel sorry for him as he confessed his losses. Mr Adoboli lived in Ghana, Africa, and probably tried to improve his life and that of his family by moving to Europe, more specifically to London, the financial centre. Here he was a waiter before joining the bank and probably he was discovered while serving someone from the City (someone told me bankers often discover people in restaurants while I myself was ones approached during a meal by a person to join his team to work for a bank. I went to one meeting and it was like a presidential election where the public were cheering those who told the public they could become as rich as them if they work hard so I can understand what might have happened. I didn't join). I can imagine: an African (although son of a UN diplomat and thus not the best example although in white Europe he might still have faced a struggle to proof himself) who moved to the UK in 1991, finished his computer science and management degree at the University of Nottingham in 2003 to become a waiter (most of them can hardly survive in London on their wages), was proud he managed to reach what he was looking for after leaving Africa.

Therefore, I think he spoke the truth when he told during his trial (according to the Guardian (27/10/2012)) that "USB was my family" and of his efforts to try to reverse the disaster that was happening: he claimed he worked up to 16 hours a day, sometimes slept under his desk and skipped his grandmother's funeral. Now of course he is ridiculed as someone who was only into making lots of money for himself who ended with debts although he earned more than £300,000.

City culture.

But that is the culture in the City. Today one earns a lot, tomorrow one is encouraged to think that yesterday was a failure and more should be earned from now on; if one is happy with the result, then managers will say one is not ambitious enough. As there are many more who want to earn a fortune and take the job, one has to take more (what is called a "calculated") risk to win even more. As long as times are good and companies make each year more profits, then there is no problem because a wrong gamble today (one does not have the time to study facts and thus bet) can be reverted by a win tomorrow. But ones the economy goes bad, one has to understand economy to make money and be able to trust what is published (and the latter was not possible as lies were published).

On the other hand, I find it only normal that someone who looses so much money is punished as he could have asked advice earlier.

But is he the only one to blame? NO !! He was a young waiter who was "discovered" by people working for USB and put in charge, together with Mr Hughes, of a fund totalling $50 billion. Their combined age was 51 years and together they had a total of 30 months of trading experience. When he (they?) saw things were going wrong he should have told his bosses. But ones someone starts earning lots of money it is very difficult to go back to a simpler life and thus one tries to hide mistakes, especially when bosses are bullies.

People at the bank should not have left them on their own as they still do with so many starters. Of course, one could say it is very honourable to give someone from Africa and other backgrounds a change. But the bank should have guided them (although today many starting a career claim they do not need help as they know it all). Someone experienced should have explained them the secrets of trading (but not the cheating). Of course, that would mean one earns less as it is a kind of paying their teacher. And here many are impatient because they want to earn the big money now.

And the culture of the City forces people to think like that. They are stimulated to show they have many "mates", they are popular and thus they should be able to drink lots of alcohol with their friends. They have to proof they are alpha-type people (men and women). Of course, a headache the day after doesn't allow for clever thinking. They then pick some of their friends and introduce them in the game as many friends also want to join the system. Often, the more people they introduce, the more they earn as the others are "employed" by them and thus need to pay their "boss" something when they have a deal. My experience is that of a pyramid game.

I read Mr Adoboli's ex-manager tries to sue USB because he claims they dismissed him much harsher than others because he is black. Maybe they did because he was the manager who failed to see the errors. But what would one expect if one sees CEOs of failed banks receive vast amounts of money for their failures? That others will understand why they are sacked for their wrongdoings?

And thus we have a boomerang-effect: people were stimulated to take risks to increase profits. They were encouraged to think big, also in their private life and buy expensive things to show everyone they were earning lots of money as more money was promised. People were encouraged to make debts and thus they were forced to make more money. As long as all went well, they earned enough to pay back the debts plus interest and employee and bank were happy. However, ones the system failed, people and banks lost. Both panicked, made bad decisions and thus lost even more.

Lesson learned?

Did the banks learn from their mistakes? Do they now guide people when they start their job or during their career to correct them when necessary? No, they do not. It is a consumption industry: if someone doesn't make enough money that person is thrown out and another can come so no-one has time to become experienced. Sometimes someone is very good and will become rich, the majority are good enough to earn well while some bring disaster for themselves and the company. If the system would self-regulate and allow others to check whether the system works well, few errors will escape and thus the system can survive.

But the system wants no intervention because it wants to play on its own terms as it things that increases profits. But few understand the system anymore and thus if things go wrong than too few know what to do to stop things go even worse. And thus bad greedy decisions of one person can result in the collapse of century old banks as happened in 1995 with Barings Bank. Indeed, one rogue trader lost less than Mr Adoboli. But only one disaster, an earthquake in Kobe, Japan, was sufficient to make the whole system fall apart. What then will happen when e.g. there are only a few storms (as recently in New York) and only one rogue trader in each bank makes the wrong bed (e.g. the storm is less or more damaging than the trader expected)?

And is trading boring? NO, not when it is done properly and one can use reason by studying the financial situation of the markets and companies. Then it can be very interesting. But it is no longer interesting when it is reduced to gambling. Wrong decisions should be punished with earning less, then people will try to make good decisions. Now they gamble with the money of others, and as long as their losses are not too big, they continue earning more than other mortals on this planet. Some even call themselves "Masters of the Universe".

If you think I talk stupidity, then read the article in "The Independent" with the title "The downfall of UBS trader Kweku Adoboli is another morality tale from the City. But have we learnt anything from the Great Crash?". Is this only happening in the financial sector? No. Today one admires people who are not afraid of making decisions without knowing all facts because time is money. And thus sometimes bad decisions are made and much money is lost. Can it be stopped? No, not yet. Because in many fields, if one does not join then one has no job, and thus more disasters will happen. Sometimes a quick decision is necessary, but made by someone who knows the field by years of experience and not by starters who still have to learn.


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