What is it about good-looking French traders and the global financial crisis?
This week, alleged rogue trader Jérôme Kerviel, whom I wrote about for the magazine, went on trial in Paris for causing 4.9 billion euros in losses for French banking giant Société Générale. Here in the U.S., Fabrice Tourre, self-described in a now infamous e-mail as the “Fabulous Fab,” remains under investigation as the mortgage banker at the heart of the Securities and Exchange Commission civil-fraud case against Goldman Sachs.
Flash bulbs popped like strobe lights as the thirty-three-year-old Kerviel arrived at the venerable Palais de Justice in central Paris on Tuesday. It took him ten minutes to push through the crush of photographers and journalists, the New York Times reported. The street was lined with television vans and crews. Ninety-one news organizations are covering the trial. Something about Kerviel clearly strikes a deep chord with the French public, and perhaps with the global public as well.
Kerviel doesn’t deny that he falsified documents and lied to carry out a scheme that initially reaped over a billion dollars in profits for the bank before markets turned against him and the scheme unravelled, in January, 2008, nine months before Lehman and others collapsed and the global financial crisis erupted. His defense is that his superiors knew of and condoned his activities as long as he made money for the bank.
Although Société Générale has tried to portray Kerviel as a rogue trader, acting solely on his own initiative, it’s clear that a culture of aggressive risk-taking took root at Société Générale and other global financial institutions. Largely overlooked in the public furor over Goldman Sach’s role in the near-collapse and government rescue of A.I.G. is the fact that Société Générale was A.I.G.’s largest counterparty in credit default swaps, and received $11.9 billion after A.I.G. was rescued. Now Société Générale is being scrutinized for its holdings of European sovereign debt.
In this regard, Kerviel and his officially unauthorized trading look more and more like a symptom of systemic problems than a cause. He has emerged as a folk hero in France. His salary and bonuses were modest by Wall Street standards; his billions in profits and, ultimately, losses went to the bank. His motive was to overcome his modest origins and class prejudice to advance his career and earn the respect of his superiors.
Unlike Kerviel, Tourre attended one of France’s most prestigious grands écoles, the École Centrale Paris, an engineering school sometimes compared to M.I.T. He subsequently earned a masters at Stanford, before joining Goldman Sachs. Since facing the glare of a congressional hearing in April, Tourre has shunned publicity. Although the S.E.C.’s complaint places Tourre at the center of an allegedly fraudulent synthetic debt deal, he hasn’t been charged with a crime, nor was he acting alone or concealing anything from his superiors. Goldman has said that Tourre’s deal cost the firm a mere $90 million, a tiny fraction of the losses ascribed to Kerviel. Kerviel was fired; Goldman has placed Tourre on leave, but is paying his legal expenses.
Despite these differences, both found themselves, in their early thirties, in the midst of a culture consumed with aggressive risk-taking and highly mathematical trading models formulated in part by graduates of France’s prestigious engineering and technical schools. Their stories bookend the greatest global financial crisis since the Depression: Kerviel at its outset, Tourre, one can only hope, during its denouement.
