Building on the Finverse, I always remember the big trading scandals of the 2000s with Jérôme Kerviel of Société Générale and Kweku Adoboli of UBS. In fact, it probably applies to all rogue traders of notoriety, including the most infamous one, Nick Leeson of Barings Bank.
What did they all have in common?
You don’t think of it this way, but banking is a game. This is particularly true of investment banking and trading. You see the numbers moving on the screen. They go red, they go green. It’s a game. When recent rogue traders like Jérôme and Kweku got into trouble, they made that comment. It didn't seem real. It was just moving numbers and charts on screens. It’s the same seductive game as online gambling, which is why people call it casino capitalism. The difference is that those who gamble tend to gamble with their own money, not other peoples.
I don’t know about you, but I’ve been experiencing that surreal gaming feeling during lockdown. I see balances going up and down; I see cryptocurrencies rise and fall; I’ve invested in stocks that have soared and crashed; it’s all a game.
Therefore, imagine you’re a kid into gaming who gets a job with MegaInvest Bank. You’re trained for six months under the graduate scheme and then you get the big opportunity: to join the trading team.
You join the team, are given a screen, see the numbers rise and fall, call the clients, shift millions and, over time, billions.
- You’re meant to send $8 million – you send $900 million
- You go out on a golf day and return to the office to order seven million barrels of crude oil, for around £345 million, by mistake
- You suddenly become a Japanese trading whale by mistake
You get the idea. The idea is that, in our age of digitalisation and screens, the line between reality and virtuality is a fine line. What's the difference between Fortnite and Apple shares? Just a click.
Back in the early 2010s, when Kweku Adoboli’s case came to light, one trader stated that the City is rife with gambling addicts whose habits contribute to a risk-prone culture. Then you watch a series like the BBC’s Industry and you think: that can’t be real?! But it is. The world of trading and investments is dominated by the lucky gamblers who win and smashed by the many who lose.
Sometimes I wonder if we’re one click away from disaster … but luckily checks and balances are in place. When we get flash trading and flash crashes, the system catches up and places safeguards, brakes and blocks. Or, at the very least, we hope they do.
So let’s bring it back to reality. Imagine the city is one big gambling house and they’re betting on 1000’s of companies (horses) running on tracks around the world. Pensions funds and asset managers are knocking on the banks (bookies) door, and the ones who win and get the best returns are happy to pay a percent of their winnings to the bookie. The more the bookie makes, the bigger the bonus. The only difference is that most bets on a race track are for small beans; most bets on the city track are for the GDP of Ghana.
Why Ghana? It’s where Kweku Adoboli was born. What’s the GDP of Ghana? $70 billion or thereabouts.
There’s the rub.
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...