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What banks will be burned by Greece ?

  
Analysis, Education, Global Indices
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Greeceflag“At end-Q3 foreigners held EUR216bn of Greek government debt (72.3% of the total market, 90.2% of GDP), having doubled their position since end-04. Given recent downgrades and another round of revisions to budget data from previous years, a sharp slowdown or even reversal of inflows from foreigners into the local debt market has become an increasing risk.”

Read the full story on FT Alphaville’s blog, by Tracy Alloway

John Paulson's 8 Secrets

  
  Education
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  1. Don’t follow the crowd.
  2. Have an exit strategy before the bubbles burst
  3. Focus on the debt markets for predicting the future.
  4. Take the time to figure out how fancy new investment products like credit default swaps (CDS) work.
  5. Buy insurance. No one wanted out of the money puts on the housing market.
  6. Remember the past. Some of the big winners in the housing crash were those dismissed as out-of-touch dinosaurs.
  7. Remember that no trade lasts forever so don’t fall in love with your investment. After making his $20 billion. Paulson went long banks at the bottom. (The verdict is still out on this trade).
  8. Timing is everything and luck helps.

5 Rogue Traders -They had Broke Banks

  
  Education
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So, who are the rogue traders that have experienced all of this? Here’s a small sample (the ones we know of!). They are not in chronological order but in order of how much money they actually lost their banks (from the lowest to the highest):

1. John Rusnak

Rogue Trader: John Rusnak

The guy that brought down the Allfirst Bank and incurred losses of $69.2 million.

He was sentenced to 7.5 years in prison on January 17th 2003 for hiding the losses that he incurred as a currency trader. He hid the losses for a year. He is now under confinement at his home (since January 2009, meaning that he served almost six years for his rogue trading).

He was ordered to pay back $1, 000 per month after his release from prison and despite the fact that he remains in debt to the full sum of $691.2 million he will probably never be able to pay it back. How did it all happen?

  • Allfirst Bank wished to make its forex operations go from just hedging to bringing in a yield of profits and thus increase the total profits of the bank.
  • John Rusnak was hired to do this.
  • Rusnak was bullish on the Yen. He believed that the Yen would not fall any more after the bursting of the Japanese bubble. He believed that the Yen would rise against the Dollar.
  • He neglected to hedge his forward contracts believing that the Yen could not fail to rise.
  • With the onset of the Asian crisis, the Yen fell.
  • He thus entered false options into the systems to make it seem as if the positions were hedged. He also asked for more money from high brokerage accounts in order to try to win back the money that he had already lost.
  • The management granted this to him and he invested even more money.
  • Rusnak made a personal gain of $550, 000 in bonuses plus his salary.
  • The losses only came to light when the bank asked for capital to be released and they realized that Rusnak had been working in the red all the time.
  • Rusnak was fired from his position and along with him he brought down 6 senior executives for failing to detect the scam.

One thing is for sure: Rusnak has kept his nose clean since getting out of prison and has managed to fall into relative anonymity. Nobody knows what he’s doing today for work. (more…)

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