Jérôme Kerviel is back in the news again… This time because he has been sentenced to five years of prison (with two years suspended), full restitution of the $7.2b which was lost, and a permanent ban from working in financial services.
France has always had a soft spot for the lawbreaker, from Jean Valjean in “Les Misérables” to Jean-Paul Belmondo in “Breathless.” Now Jérôme Kerviel has attracted a fan club of his own.
When a person loses $7.2 billion of other people’s money, other people naturally want to know more about him. They badly want to believe that he is in some way unusual. To blow up $7 billion — to buy more than $75 billion in equities in private — must require some kind of genius.
But despite some seriously sweaty journalistic effort, all we know about 33-year-old Jerome Kerviel is that he was a mediocre student, a green belt in judo and unsatisfying to his wife.
A few stories have pushed the serial killer angle of the quiet loner; a few others have tried to sell readers on the notion that he’s a dead ringer for Tom Cruise. And while you have to admire their effort to make the young man interesting, the journalists have been undermined by the testimony of old friends (“an ordinary guy”) and the mug shot of Kerviel’s sad thin face, which doesn’t look a bit like Tom Cruise’s.
Right up until his bosses discovered what he’d been doing with the bank’s money, no one thought of Jerome Kerviel as anything special. And he wasn’t.
As in most of the rogue-trader cases, including Nick Leeson’s, the main character of the drama appears as flat as a character can be. Dull people can do exciting and unusual things, too; indeed, those less capable of finding interest in the ordinary have greater incentive than interesting people to engage in activities with surface thrill — such as, say, cliff diving, or buying $75 billion of European stock-index futures.
The story of Jerome Kerviel is less a tale of an evil genius at work than of a dull young man being acted upon by events almost beyond his control. I may be wrong about this, but so long as everyone else is still guessing I might as well, too.
Just My Imagination
And here’s my guess: Jerome Kerviel never imagined himself in anything like these circumstances. They just sort of happened to him in stages.
Stage 1 would have been his initial decision to be more like what he imagined a real trader to be than what he actually was — a functionary on a trading desk. His job was to arbitrage price differences between identical stock-market indexes.
In doing this he naturally developed a view of the stock market, just like a real trader. His view was that it was going up. Thus, one day, filled with conviction, instead of buying one market and selling another, he buys one market — and then neglects to sell the other. It’s such a small act of rebellion that he barely bothers to hide what he’s done.
One of the striking things about rogue traders is that they always lose money. Perhaps they just are born with an incredible knack for being wrong about future market direction. Or perhaps, if they guess right, they aren’t exposed by their employers as rogues.
Whatever the reason, they tend to be the people whose bets lose money pretty quickly. Kerviel’s lawyers imply that his first bets worked — that at one point he was up as much as $1.5 billion euros ($2.2 billion). Somehow I doubt it. I doubt that if young Jerome had ever been up as much as $10 million he would have kept this wonderful fact to himself, or that his bank, upon learning of this luck, would have let him run with it.
He would have let it slip that he had been doing a bit of “trading,” and Societe Generale would have shut him down because even French bankers are smart enough to know that they can’t make a living betting on the direction of the stock market. (“Nice work, Jerome. Don’t do it again, n’est-ce pas?”)
As I imagine it, young Jerome pretty quickly finds himself staring at a shocking loss. Thus he enters Stage 2: doubling up and averaging down.
The market is falling but he’s buying it ever more cheaply and if he just keeps doing it the market will eventually rally, and he’ll make it all back. Now all of his day is spent frantically making bets and hiding them.
“If it rallies and I get back to even no one will ever know,” he thinks to himself. If he wasn’t a “quiet loner” before, he is one now.
Who has time to talk? All he can think about is money, money, money. Deep down he knows he’s been a bad boy, and so he’s not sleeping. He used to love the simple pleasures: a stroll down the Seine, camembert on a baguette, thinly coated with moutarde. Now he hardly tastes his food.
He once thought of himself as having a way with the ladies but sex is the furthest thing from his mind. He’s ceasing to be French. He’s becoming American.
Now come these weird, false, fleeting sensations of total freedom. His ordinary mind cannot fully accept the reality of his situation and so it works overtime to generate fantasies. He fantasizes about dying before anyone finds out. He fantasizes that terrorists blow up Societe Generale before anyone finds out.
He walks home one night and there is something about the durability and grandeur of Paris. It gets him thinking. He is long $60 BILLION in equities. That’s more than the market value of the entire freaking bank. And no one knows! Maybe no one will ever know! Maybe he can just keep losing billions, in private.
For the first time in months he sleeps well. Then he wakes up.
Then, of course, he is caught. And as unreal as the past year has been, what happens next is even less real: All these total strangers writing and talking about him as if they know him.
They call his mother, his aunt, his old school teachers. All these other people he barely knows discuss his character in detail — while the people who actually know him a bit and are qualified to comment keep silent. All these big shots in Davos stop worrying about the subprime collapse and started worrying about him — as if he is something more general than himself. A Problem.
But none of these people understand: This thing had nothing to do with him. It was all a big mistake. Or, rather, it was a small mistake that took on a life of its own. Now Jerome Kerviel feels not like a genius, or even a trader. He feels like the victim of an accident.
And, in some weird way, he is.