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I think Soc Gen's actions did move the market to such an extent that the Fed felt it had to move. There may be more bad news to come from the States that they know of but we don't yet so maybe Soc Gen's actions were just a tipping point to act and act early.

Equally maybe some of the Soc Gen deals unwound were large positions on the US monoline bond insurers? If so then maybe the Fed feared it had to act decisiviely to help the US financial and banking sectors.

I think the Fed was spooked and the way share prices have bounced since then probably backs this up.

What this does show is just how trigger happy the Fed and the markets are at the moment.

Good theory but the sell-off in the Far East started before Soc Gen came out. And why would Soc Gen dump shares on the market to reverse a futures position?

You, of all people, should know that there have been a number of reports talking the market down and the effect of computer-based trading once the trigger points are reached.

"The notion that this rogue trader could have bounced the most powerful central bank in the world into a savage interest rate cut is alarming, to put it mildly."

...and ridiculous.

This is no longer about single banks' losses, it is about the systemic collapse of the banking industry.

It's just a question of how long the finger can be held hovering over the 'reset' button, and contemplating the consequences of actually pushing it.

This was just ONE FORCED SELLER.

As the economic slowdown starts taking a grip how many more forced sellers will come into the market? Where traders/computers sell when the price reaches a given level.

When the pension funds start selling as the returns do not cover their requirements?

We have created an economy which can only survive where the price for goods just goes higher and higher.
i.e. There is some fool who will pay more for your house than you did.

Wakey Wakey. Time to wake up.

Robert, just the other day you were reminding us of how finance authorities had direct responsibility for supervising the health of banks, then straightaway we have a spectacular instance of where the stripping out of supervision is taking us…no risk management, no internal controls, no compliance testing and control, no internal audit.

How they can now argue that regulators have to have a more indirect relationship with banks, or responsibility for the stability of the financial system rather than the health of individual institutions, when they themselves cannot or will not put compliance procedures into practice.

Today’s disclosure more than anything reinforces the fact that finance authority auditors have to go into banks etc., examine balance sheets and operating methods and so on, and write up the business requirements that have to be in place by their next visit.

Only then will you guarantee independence and transparency in the process. That is the way it used to be, keeping management on its toes, and that is the way it will be in the future since obviously they themselves cannot or will not be trusted.

The psychology of this is fascinating. Ben Bernanke, 54, is himself a product of the postwar golden age of the baby boomer, and yet coming from the wrong side of the tracks to Harvard he maintains an almost obsessive interest in the causes of the Great Depression, with a wish not to repeat those mistakes.

Often the thing in life that we most fear is the very thing that our subconscious engineers.

After the leaked, panicky Fed. rate cut, the underlying psychology of the market increasingly seems to be that, perhaps, after all, the big one may be out there. That the Fed. knows something that we don't.

For all our sakes, BB needs to lighten up, and watch more of the Simpsons than pour over, yet again, the symptoms of economic disaster.

In mathematics a dynamical system is called "unstable" if a small perturbation of a single input parameter has dramatic and global behaviour. If a single person can cause such dramatic effects on global economy, then we should call the financial system unstable as well.

I get completely fed up of all the ''if's, but’s and maybe's - coulds and might haves' and Sir Howard Davis should know better than ask a string of questions and leave them in the air.

So what if the Fed did know? So what if they didn’t?

The only story here is The Fed has taken the right decision either way so stop trying to create intrigue - as I see it the outcome is the same ''whatever''.

'the notion that this rogue trader could have bounced the most powerful central bank.. is alarming'.

No Robert, it is ridiculous.

Colleagues of mine, former central bank staffers themselves have confirmed that if you showed up to a Fed meeting wanting to cut rates due to a few day's markets move you would be literally laughed out of the meeting and probably fired.

Economics 101 lesson : monetary policy is for medium to long term economic redress. The US Govt has many better tools at its disposal to attend to significant market falls.

I'm going to stop reading your articles quite soon as your column is deteriorating quite rapidly in terms of financial / economic susbtance.

It seems amazing to me that the current finaince crisis is being discussed by th epeople who caused it. Basically, if you loan money to people who will struggle to re-pay. something is going to go wrong, yet these 'experts' loaned money to high risks and the world markets are suffering. Are they really experts?

As USUAL concentrate on the doom and gloom - keep buying cheap shares folks - things are getting better despite Peston and Co - I have made a fortune over the last few days and it aint stopping yet.

So - the whole near meltdown of the world's financial system was due to a bit of a banker (no, Robert, I said BANKER) tucked away in Paris.
As you identify - it doesn't provide much comfort as to the stability of the world's financial markets, does it..??

So - the whole near meltdown of the world's financial system was due to a bit of a banker (no, Robert, I said BANKER) tucked away in Paris.
As you identify - it doesn't provide much comfort as to the stability of the world's financial markets, does it..??

All this just provides more evidence that rather than having a sophisticated banking systems it's just a glorified casino of a marketplace.

How big was the position of the SGs they were trying to unwind ? All we've heard is the resultant loss.

Was the routine check that highlighted the fraud made in France ? If so what are the safeguards when other financial institutions have their back offices in different continents and time codes.

SG certainly isn't the biggest player, the losses sustained by SG are a small drop in the ocean compared to large companies market valuations.

So I doubt that it was an influence on the Federal Reserve.

Robert,
How long do you think it will be before a hedge fund comes out over problems with the volatility around this debacle and requests special treatment?

How could the Fed be told? It was on holiday!

The alleged "rouge trader" was trading index futures - how did that result in real shares being dumped by SocGen ? Can someone in the know explain ?

BTW, I for one do not believe that the Feds didn't know about this.The Bank of France knew so they would have at least told helicopter Ben (Fed) and the old lady (BoE).

Hmmmmmm....

Makes you think doesn't it.

Although, SocGen did act irresponsibly in trying to close out the position all at once. - same as Barings. They could have closed the positions out slowly and minimised their losses.

Robert,
How long do you think it will be before a hedge fund comes out over problems with the volatility around this debacle and requests special treatment?

It's nothing new if a huge decision is based on incorrect information. That's the way of the world - Iraq war....
Plus ca change ..

Whatever the truth I guess it's just another thing to make traders more jittery.

Question is, will the Fed now reverse its decision???

Robert, I think you starting to wander. The Soc Gen issue relates soley to France and poor contols within the Bank.

Time to give Davos a break, please focus on the the issues to hand here in Britain and it's Commonwealth.

'the notion that this rogue trader could have bounced the most powerful central bank.. is alarming'.

No Robert, it is ridiculous.

Colleagues of mine, former central bank staffers themselves have confirmed that if you showed up to a Fed meeting wanting to cut rates due to a few day's markets move you would be literally laughed out of the meeting and probably fired.

Economics 101 lesson : monetary policy is for medium to long term economic redress. The US Govt has many better tools at its disposal to attend to significant market falls.

I'm going to stop reading your articles quite soon as your column is deteriorating quite rapidly in terms of financial / economic susbtance.

If this is one of the factors behind the rate cut in the US then it firmly falls into "you couldn't make it up" category.....

I agree with many other comments on previous blogs that if you're trying to solve the problems of credit been too cheap for too long then the solution sure isn't to make money cheaper again!

Throw in the $145bn tax refund on its way and the US is heading for one big inflation headache in the near future.... sooner or later they're going to have to face facts and stop trying to push the recession further into the future (then again with an election about to take place as long as the recession starts after Nov 2008 that's all they appear to care about right now).

I'm just glad the ECB and our central bank are not quite so keen to bail the markets out and are more concerned about economics than politics.... we used to have political motivation behind our interest rates and all that gave us was boom and bust....

Quite Possibly.

SocGen losses through rogue trader 4.9 billion euros.

Rights issue 5.5 billion euros blamed on trader.

Income from share sales likely to be substantial.

Both understandable capital raising moves deflect from (and prepare for?) revelations to sub-prime exposure.

The board of SG have quite rightly adopted the approach “today would be a good day to bury the bad news of sub-prime exposure”.

A very interesting piece -- apparently President Sarkozy didn't know till Wednesday morning, so it does seem unlikely that the Fed was told beforehand... and if the Soc Gen "knowingly" contributed to making a false market, surely someone might start legal action over the losses they have incurred -- no doubt some smart US lawyers are already assessing the situation.

Another question.

What about Soro's pronouncement from Davos. Was he trying to make the market?

You draw an unsubstantiated link between falling share prices and the Fed cutting rates.

The Fed cuts rates not to avert stock market crashes, but to target the real economy 1-2 years down the line (rate cuts take that long to feed through).

Whilst falling share prices may have contributed to the diagnosis of problems in the real economy (i.e. 'the real economy needs a demand increase 1-2 years down the line'), they were not the main, and certainly not the only factor contributing to the diagnosis.

Therefore, the falling share prices, to which the SocGen contributed, could not have 'bounced' the Fed into anything.

Roll on summer. Too many people cooped up inside thinking up conspiracy theories at the moment.

More to the point why was the fed orientating monetary policy around the short term gyrations of the equity markets?
Sell the fed.

Am I missing something? If Soc-Gen have lost 4.9bn euros, hasn't another bank won the same amount?

The story being circulated is that SocGen's problems are down to a "rogue trader". This is not convincing because banks have compliance departments, especially after Leeson.

The real problem for all international banks is that in the guise of Investment Banking major international banks are in fact gambling with their savers and share holders money.

When "investment" is reduced to placing bets in a betting shop or a casino it is likely to be a job "ill done" as Keynes famously said.

Good banking is an exceedingly simple and boring business. Money is lent at one rate and savers are given another. Banks exist on the difference. All the other exotic "trading instruments" are no more than smoke and mirrors impenetrable to rating agencies, regulators and even banking management.

It's time for a major structural reform of the banking model, with regulators who regulate.

Roll on summer. Too many people cooped up inside thinking up conspiracy theories at the moment.

The Far East sold off way before Europe opened and that was more likely to do with the re-rating of Ambac on Friday. this is just smoke and mirrors and don't be suprised if this guy lost nowhere near the amount Soc Gen are claiming and they have just nailed a load bad write downs on him as well. it seems odd this guy was not immediately arrested. I suspect a deal has been done as Soc Gen originally said they had very little sub prime exposure and this seemed like a good way to ease out the bad news.

Robert,

That's something to argue about but surprise, surprise, the Feds being talked about in negative terms !

Anything can happen in the business of global financial relationships that have stopped trusting each other because the real value and risks associated with global debt are still being manipulated and hidden.

The Fed, BoE, Bankers and City Slickers are usually smart but many at the present are 'refusing' to see the wood from the trees whilst the big global dogs eat the little dogs.

All that money and no gesthalt !

No sane person outside the financial markets believes the shenanigans that have just come to light at Societe Generale was caused by the actions of a single rougue trader working there.

The root cause of the problem that continue to bedevil the finacial markets have been clearly identified by professor Steare who carried out extensive studies on the people who work there.

The professor said he found there was a systematic deficit in ethical values within the banking industry and these people score lower than average in honesty, loyalty and self-discipline. That in a nutshell says it all about what is wrong with the industry and the people who work there, even at the top.

It is therefore not unreasonable to conclude (with human nature being what it is) that there is a direct correlation between increased bonus payments and an increase in the deficit of ethical values as well as a lowering of honesty, loyalty and self-discipline.

Robert
since you are in Davos with the great and the good you need to ask the following questions of your international colleagues - why didn't the French Robert Peston break this story before or while SocGen where trying to deal with the issue in a sensible and controlled manner. This might have caused massed panic amongst the French OAPs, led to queues outside their branches, created a bigger news story and enhanced his profile with the French National TV station. Oh and as a side effect made their capital position even worse, put thousands at risk of redundancy, removed millions from charitable foundations, allowed short sellers to sell shares they don't own for a hugh profit when they haven't made or built anything in their misbegotten lives, undermined the French Government and made the French banking system a laughing stock - still it would have been worth it to uphold the forces of truth and justice. It would have also given every Jean, Pierre and Louis who owns a computer the chance to post on their blog telling everyone that they knew this was going to happen it was obvious and that they had been discussing this since 1988

I think the FED knows a recession is comming unless it does something drastic and massive, this is did with the 0.75% rate cut. I agree this does nothing tangible immediately but does change sentiment and perception, which the markets appear to run on.
Tie this into GWB's billions and billions of tax releif and there's a 'whatever it takes until we're broke' whitehouse approach to keeping Americans spending.
Sadly in the UK Gordon Brown and Mervyn King cannot do the same - the government cannot afford to and the bank of England need to keep 'preferred measure' inflation down under 2% - cutting rates by 0.75% would mean disaster. Why can't we all just accept a period of slowdown following 7 outstanding years of growth?

If the monoline reinsurers can prove that the banks lent irrationally then the liability will rest with the banks alone.
As such no bonuses shoudl be paid until teh matter is cleared up

I think the FED knows a recession is comming unless it does something drastic and massive, this is did with the 0.75% rate cut. I agree this does nothing tangible immediately but does change sentiment and perception, which the markets appear to run on.
Tie this into GWB's billions and billions of tax releif and there's a 'whatever it takes until we're broke' whitehouse approach to keeping Americans spending.
Sadly in the UK Gordon Brown and Mervyn King cannot do the same - the government cannot afford to and the bank of England need to keep 'preferred measure' inflation down under 2% - cutting rates by 0.75% would mean disaster. Why can't we all just accept a period of slowdown following 7 outstanding years of growth?

I feel that Robert Peston's handling of the Northern Rock crisis has been nothing short of shambolic and his negative reporting about the bank assisted in heightening the panic amongst the general public. This has led to the undermining of the British financial instituion in general. Perhaps in future Mr Peston could promote a more balanced view emphasising the positive aspects of NR which could help restore confidence in what is now the safest bank in the world!

The notion that this rogue trader could have bounced the most powerful central bank in the world into a savage interest rate cut is alarming, to put it mildly.

Fully agree.
The Fed and Helicopter Ben have egg on their face now. History will not be kind to this Fed.

Think about it. They were due to meet 7 days later on the 31st. If they were not bounced, then why did they find it necessary to act on Jan 22nd with whopping 75 point cut ??

I'm afraid their action speaks louder their BS.

The Fed was panicked into acting.
Pure and simple it knows the economic downturn in the U.S is likely to be bigger than they are comfortable with.
The problem is that if the "recession" still occurs, there is little the Fed can now do to stimulate their economy.
Sooner or later the extreme debt levels of America Inc has to be balanced with assets and deferring that by making debt easier to stack up is not the cure.
Post 2001 to avoid a recession they made money effectively free. To allow Banks to use it they liberalised the lending ratios. They then had to find somewhere for this extra money to go. Hence lending it to people who on normal banking loan terms could not afford it. The introduction of the mortgage brokering system compounded this to hide the real risks against these loans.
Making money free again (as they are attempting to do, rates almost equivalent to inflation) is not the cure, it was the decease and more of the same will not help.
Expect some very rough times ahead,

Then again Mr Peston, your concerns seem to be premised on the bankers at the Federal Reserve being competent in the first place. After all, their solution to any economic problem seems to be to lower interest rates in order to foster inflation and promote a new bubble in some asset class or other...

Whether it was the SocGen sell off that made the FED lower rates isn't really here nor there. The FED wil probably have lowered them to this level sooner rather than later.

The issue is that it will give the impression to some that it isn't in control and at this unstable time that could cause massive problems.

I currently think ht FED left rates too low for too long and then raised rates to too high a level too quickly. This stopped the over-investment in property but did so too quickly.

Now they feel they have to lower rates in desperation to stop the economy contracting too much and then going into a Japanese style comma.

This fast seesawing in rates is increasing the volitility in the markets.

Added to that the Americian finanical system has lost a lot of credability.
I personally would not trust any of the americian banks/investment banks that sold/promoted CDO/SIV etc with a cent of my money. Esp as they are continuing to pay out dividends and bonuses as they and their clients (other banks, pension funds etc) loss a massive fortune. I think they, in a way, have conned their customers (even if their customers should have known better).

America's finicial system and government has to make sure it's bond insurers meet their liabilities before insurance companies and our pension funds are forced into a fire sale or else America will not be seen as a safe place to invest in future and will therefore have to pay a larger risk premium, stunting growth for the next decade or more.

Why hasn´t the ±«Óătv covered the latest twist in the SocGen saga? It seems that Board members were out lining their pockets (American Dep´t Justice investigation into 140m sale of socgen shares) while this was all unfolding. Poor little lad takes the fall yet again.