Recently, I’ve been following very closely with the case of Societe Generale and now-infamous trader Jerome Kerviel, who is been blamed for causing close to 5 billion Euros of loss as a result of trading on futures contact.
I was amazed, honestly, by the fact that he was able to, single-handedly (although this is being disputed at the time this article is written), build more than 50 billion Euros position within a couple of years, supposedly went unnoticed.
And he actually made some profit (about 1.4 billion Euros) before taking the big hit due to the recent recession of World economy.
And what he did was strikingly similar to what George Soros, the greatest hedging fund manager and the man who broke the Bank of England, did, back in 1992.. (Well, minus the part of computer hacking and so on).
Both were trading futures contracts, both spotted an arbitrage opportunity that others would probably think that was insane, both were playing around with the tiny margin of exchange rates, and both were building positions that were multiple times of their limit (Soros borrowed most of the 10 billion he used to short sale Lira and Pounds, among several positions that he has hedged against other currencies).
The only difference is that back in 1992, risk management was very little known and since Soros was the boss, he was allowed to take such a risky move.
And George Soros made the right bet, and earned a billion in 24 hours, but the unfortunate Jerome Kerviel did not, and lost about 5 billions.
And George Soros became the most successful fund manager in the world, and Jerome Kerviel become the newest criminal and possibly will be condemned for the rest of his life.
As we all know, large profit will only come as a result of large risk, and from the investors perspective, the higher the profit, the better.
If that were to be the case, why should we hate Jerome Kerviel while we worship (to a certain extent) George Soros?
And the bigger question is: did we, in the midst all the regulations and risk control processes, accidentally “kill” many more potential risk-takers who could potentially become the next most successful fund manager?
To me, Jerome Kerviel is just an unfortunate genius, who, perhaps should be born 20 years earlier.