Adrian Hamilton: You can't blame it all on a rogue trader

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The Independent Online

If you thought that Britain was adept at putting the blame for disaster down the line and never up it, you should look across the Channel. The Paris trial of the rogue trader Jérôme Kerviel for nearly bringing Société Générale down with €4.9bn losses on unauthorised trades ended as you would have expected, with the full majesty of the French law being brought down on the little man.

No sense here that Kerviel, a relatively junior figure in the bank, was only doing what many of his colleagues were up to in high-stakes gambling in the financial markets or that it was something his bosses implicitly turned a blind eye to so long as he was making them profits and big bonuses. Instead, the judge, Dominique Plauthe, declared him the "unique mastermind, initiator and operator of a fraudulent system" and sentenced him to five years in jail. And just to ram home the conclusion of his sole responsibility, Kerviel was ordered to repay his former employer the losses – a sum which would take him 180,000 years to pay on his current income.

No one, not even Société Générale, expects the man actually to repay that money. The object is to "send out a message". And the message is not just that crime shouldn't be allowed to pay – Kerviel's fairly modest income from lectures and the sales of his book are hardly testament to that – but that this man should be held responsible for, as the judge declared, "putting in peril the existence of the bank that employed 140,000 people, of which he was a part". Well, that may be. But it wasn't rogue trading that nearly broke the Western financial system and caused the biggest recession since the thirties. It was the actions of the banks and their managements in chasing profits through ever wilder trading and ever more exotic financial instruments. Kerviel's actions weren't noticed, let alone properly supervised, because he was particularly clever. He wasn't. The markets in which he traded were relatively conventional, the fact that he bet in billions wasn't that unusual. Having experience in the backroom, he knew how to "reconcile" his trades at the end of the each month by sleight of computer hand.

Personal greed was probably not a major element in Kerviel's motivation. Self-aggrandisement, being a "master of the universe" probably was, as it was in the case of Nick Leeson, the man who literally broke the bank of Barings in 1995.

To that extent there is something of class prejudice in the treatment of Kerviel, as there was of Leeson. Neither of them were university graduates, the elite from the grandes écoles who have ridden the great surge of banking glory over the past decade. Nor was he malign as such. Compare the crimes of which Kerviel was found guilty – abuse of trust, forgery and computer abuse – with the fraud involved in Ponzi schemes, insider trading and the other crimes that litter the City and taint its more senior echelons, and you can't say that Kerviel set out to defraud his employers or their clients, whatever cataclysm his activities might have caused. If he had been better supervised, if the bank had had better systems in place and the management been less nonchalant about what was going on, then it would never have happened.

Which is the important point when considering this case in the wider context of the post-crash debate going on today. So far all the attention of national and international authorities has been on ensuring that banks have the reserves to meet a recurrence of crisis and that their activities in the markets are regulated. Added to which, of course, is the appetite to tax profits and constrain bonuses to ensure that the financiers suffer for their sins.

These are all measures to deal with symptoms rather than causes. Nothing can really be done about bonuses, about the volatility of markets or the inherent instability of the financial system itself until we understand, and grapple with, the reasons why the profits of banking have moved from retail to wholesale and why ordinary, low-level traders such as Kerviel find their ambitions fired by taking risks and cutting corners. The answer is not in punishing the small man but in tackling the system.

How seriously to take these terror warnings?

What to make of the warnings from the US, the UK and Japan of the imminent danger of Mumbai-style assaults in Europe? It's certainly connected with the recent spate of drone attacks on individuals in Pakistan and intelligence about European citizens training out there. But Germany, seven of whose citizens were reportedly killed in one drone attack in Waziristan, seemed both surprised and not especially impressed by Washington's warnings to its citizens. The French, although arresting 12 people of Arab descent on terrorist grounds, insisted that this was a North African connection and nothing to do with intelligence in Pakistan. Even British officials, while going along with the warnings, suggested that they weren't really necessary over and above the state of alert generally instituted.

The US being especially cautious with their citizens? The Europeans fearful of affecting vital tourist income? Or is it that, nearly a decade after 9/11, we still don't quite know how to deal with warnings. Washington didn't give nearly enough detail to justify its generalised advice. European governments said virtually nothing about what has been uncovered in Afghanistan-Pakistan and how immediate a threat it represents. Isn't it time for security services to be more open about their information? The average citizen is mature enough to accept advice and make their own assessment of personal risk.

For further reading

'L'engrenage: Mémoires d'un trader', by Jérôme Kerviel (Flammarian, 2010)