People Power GSB

["Harold Fox" <hfox@>]

As we struggle through our mundane lives and mediocre accomplishments, it is
easy to lose sight of the impact we can have to change the world. Today's
GSB is a heart-warming reminder of how, with hard work, discipline, and a
little luck, ordinary people can accomplish extraordinary things.

Jerome Kerviel was a simple country boy, born in Brittany in north-eastern
France, far from the bright lights of Paris. His mother was a hairdresser
and his father a blacksmith. He was an undistinguished pupil. He attended
school at the University of Nantes and University of Lyon, generic regional
schools and a far cry from the grandes ecoles that train the elite of
France's politicians, businessmen, and scientists. He worked hard, however,
and at graduation in 2000, he got a job in the back office of Societe
Generale, the second largest investment bank in France.

In this menial position, his job was to approve trades, making sure that the
traders kept their exposure to the markets within limits. But he always
dreamed bigger. He wanted to be a trader himself, those free-wheeling
cowboys of capitalism with their fat bonuses and fancy diplomas: their
Ferraris, their flats on the banks of the Seine, talking on two phones at
once, fingers always on the pulse of the market. In 2004, he finally became
a Junior Trader in futures arbitrage. But the salary paid only 75,000 euros
a year. The trading was mundane and mechanical. In early 2007, his
girlfriend left him and his father passed away. His life was going nowhere.
But he knew how to make money, and he was going to show his bosses how. In
2007, stock markets were going down, and he was ahead of them. He slowly
built up a large short position using futures. To hide his bets, he created
fictitious long positions, so his old friends in the risk management
department wouldn't suspect anything.

By the end of the year, he had earned 1.4 billion euros of profit for the
bank. His instincts had worked beyond his wildest dreams. But where was he
going to hide 1.4 billion euros? He had to take a real loss somewhere, or
his supervisors would find him out. In January, he went long on the same
stock market futures, knowing it was a losing position. But it was too big.
Stock markets crashed in January, and his futures position lost 1.2 billion
on paper. The bank discovered his shenanigans, and the jig was up. It fired
him and liquidated his positions. When anyone sells that much into a falling
market, losses multiply. Societe Generale wound up losing 3.7 billion at a
time when it was already reeling from its US sub-prime mortgage losses.

Today, Jerome is in jail, and SocGen will probably be acquired. A grand,
ancient institution at the height of the global economy was brought down by
one man, working alone. The story shows that opportunities are everywhere.
If you follow your dreams, you too can accomplish great things.

           +-                                                  -+
             girl scout benefit -+-  5:30 pm  -+- 32-G9 lounge
           +-                                                  -+

              For those coming from elsewhere: Building 32 is
               <http://whereis.mit.edu/map-jpg?selection=32>
          Once you are in 32, just take the G-elevator to the 9th
      floor and we will be in the lounge that you will be looking at
                    <http://projects.csail.mit.edu/gsb>