Several newspapers reported this week that Jerome Kerviel, the maverick trader at Societe Generale, was released from pretrial detention by a French court this week. Mr. Kerviel had been jailed because of prosecutors’ fears that he might jeopardize the state’s case should he talk to other individuals associated with the investigation.
To refresh readers’ memory, Mr. Kerviel, seeking to impress his superiors at SocGen, undertook risky derivatives trading. At one point last year, Mr. Kerviel had put the Company at more than 50B Euros in risk – more than the market capitalization of the whole company. Interestingly, Mr. Kerviel made the Company more than 1.5B euros in profits in 2007. But that was then and today is a different story. It was only when Mr. Kerviel started to really try to outdo himself did bank officials start to take notice. Now 5B euros poorer, SocGen wants revenge against its hapless trader.
Anyway, while all of France is watching banking officials wail and moan of the crisis created by this event, nary a similar peep can be heard from the banking counterparts in the U.S. in regard to the sub-prime loan scandal.
Oh sure, the recession (the “R” word, as this Administration prefers to call it) and the scandal of borrowers taking loans out on risky investments is all the talk here. But little is said of the lenders making risky loans to people who were high credit risks; issuing loans for 100% of property values at interest only. Then, securitizing the loans, selling them on the market and investment houses buying them up and fobbing them off on investors. At each step in this labyrinth process, questions should have been asked, red flags should have shot up, intelligent people should have asked questions.
But none of that apparently happened.
Instead, one of the biggest culprits, Countrywide, just retired its CEO, granting him 100s of millions in retirement compensation. Another, Bear Stearns, just got the get out of jail free card from the U.S. government. The list of free passes is already getting long.
When is the U.S. banking industry going to be held accountable? If recent history is any indicator, never.
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