QUESTION: Do you believe that the Club you have written about since your piece Behind the Curtain published several years ago is in control of markets rather than the popular conspiracy groups?
ANSWER: Actually nobody is in control. If they were, we would not have these contractions since Long-Term Capital Management in 1998 where these so-called sophisticated investment banks always need to be bailed out. Far too many people simply believe the big investment banks are very sophisticated. That is just not the case at all. They are too busy manipulating markets to ever spend the time on risk management.
I know the game. Whenever they lose big time, they claim it is a rouge trader. Let’s set this straight. Nicholas “Nick” Leeson was a former derivatives broker whose the story claims did fraudulent UNAUTHORIZED speculative trading that led to the collapse of Barings Bank, which was the oldest investment bank in Britain. They had an account at out Hong Kong branch of our brokerage house. We had no problem because the board of directors provided authorization for his credit line. If you do not ask for something like that, you are asking for trouble. In the case of Yakult in Japan, I asked for a letter from the board of directors confirming they were aware of the directions of their Chief Financial Officer. When they would not provide such a letter, I refused to comply with the orders and the account was closed. However, they hid $100 million loss at our Hong Kong office and then asked for us not to reveal that publicly. It took them one year to pay us that money, thereby confirming that the Board of Directors knew what was going on while the press demanded the head of their “rouge” trader.
I have NEVER see a rogue trader yet beyond small change. When you get into huge amounts of money, the board ALWAYS knows. They just pretend to be victims to save face.
This is why I say banks MUST be barred from proprietary trading PERIOD! They are NOT sophisticated and openly pretend to be so, and routinely blow themselves up like clockwork. When you rig the game, bribe everyone in sight, own the courts and the regulators, install your own people in government, you do not rely on risk management, models, or being a REAL trader. This model has undermined everything in society, deprived us of a fair and honest government, and has placed at risk the very thing that makes civilization function – the synergy of cooperation that is greater than the sum of the parts.
