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Businesses Security The Almighty Buck United Kingdom IT

IT Could Have Caught $2 Billion Rogue Trader 179

superapecommando writes "With the benefit of hindsight, IT experts are claiming that technical countermeasures at Swiss bank UBS could have stopped rogue trader Kweku Adoboli running up a $2 billion loss." If American Express and Visa can mine transaction data and put a stop order on credit cards when you unexpectedly buy gas out of state, it seems like there could be patterns to watch for when the amounts are in the billions, too.
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IT Could Have Caught $2 Billion Rogue Trader

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  • by Trepidity ( 597 ) <delirium-slashdot AT hackish DOT org> on Saturday September 17, 2011 @06:39AM (#37427796)

    A problem is that it's difficult to design a system to automatically determine "risky" or "rogue" or "non-normal" behavior in investment banking, because taking crazy bets is what they do, and interpreting their official policies loosely is a big part of that. Sometimes it turns out massively well, in which case bonuses all around; other times very badly, in which case start looking for ways to label the guy "rogue" and fire him. But it's de facto, if not officially, part of "normal" operation of an investment bank; it just sometimes turns out badly.

    • So it's glorify the gains and criminalize the losses!!! Where have I heard something like that before.. hmm...
    • Re: (Score:2, Insightful)

      by dnaumov ( 453672 )

      There is no "problem". Any investment bank that is not actually retarded has realtime systems that monitor overall risk of the entire bank it's, any given branch and any given desk.

      • by dnaumov ( 453672 )

        And to expand a little further: there is nothing crazy or stupid about making trades sized in the billions. It's not even that uncommon either. Quite a few companies are doing arbitrage trading with trades in the hundredss of millions on a regular basis, where the profit on whatever they are trading is miniscule, but the massive volume makes up for it. The obvious thing is that you are supposed to be hedged. Doing trades in the billions unhedged? Yeah that is absurd. What's even more absurd is that the alar

        • by epine ( 68316 ) on Saturday September 17, 2011 @08:05AM (#37428054)

          The obvious thing is that you are supposed to be hedged.

          You need to imbibe some Argumentative Theory [edge.org], followed by a Black Swan shooter.

          There's a mathematical definition of hedge, and there's the social theory of hedge. The later means "but I think I can get away with it, so it's OK". The mathematical version depends on having correct variance models. If you don't, no hedge exists. Taleb 101.

          Society would benefit from hedging itself against the tendency of bankers to hedge themselves deep into the grey zone.

          Seriously, bankers talking about risk is a lot like Tom Cruise interviewed after filming Days of Thunder appearing to say--very fervently--that the idea from the movie that you can't control circumstance at 200 mph is full of baloney and that he really got mad filming those scenes where other characters throw this in his face. He races his own cars and believes in control over destiny, which is common among people who take insane risks.

          Even if you have LTCM wonks dictating algorithms to be coded by nuclear power engineers and run in NSA bunkers, you can't escape precipice risk. But you can shepherd all the risk with your border collie safeguard systems into the universal millisecond of doom.

          So in the lingo, an unhedged risk is the one where only one bank has egg on its face, and a hedged risk is where every fucking bank has egg on its face, and greater society picks up the tab.

          • In my coda, the question is whether this parable applies to the lone guy at the trading desk, or to the evolution of computerized trading safety nets which ensure that no one fails until we all fail, Dr Strangelove style.

            You be the judge. No hedge achieves measure zero.

          • by WoOS ( 28173 )

            So in the lingo, an unhedged risk is the one where only one bank has egg on its face, and a hedged risk is where every fucking bank has egg on its face, and greater society picks up the tab.

            This is the general problem with short-term speculation. It is a (near) zero-sum game (the near due to possible arbitrage gains from providing liquidity for long-term trades). Yet for years banks have posted record gains out of it. That money had to come from somewhere. It came out of the coffers of the financial institutes which had to be saved by governments in the last financial crisis.

            And had UBS lost not only 2 but say 20 billions, it would too have to be saved (again) by the Swiss government. Yet the

          • Disclaimer: I don't work for UBS or a bank.
            I don't think there is a need to read too much into the word "hedged"
            The guy seems to have worked on ETF/delta one desk. The desks job is to sell clients securities and replicate the returns using equivalent assets . For eg: if an insurance company wanted a product that tracks the inflation of Eurozone, UBS would (presumably) sell them a swap or a debt instrument which would pay the weighted average of inflation across Eurozone. They would then "hedge" this ris
        • Steamrollers can't be hedged ... if you are getting much better returns than treasuries in an efficient market with no inside information you're running much bigger risks, period.

          • Wall Street's belief is that there is an efficient market, when there clearly isn't.

            I bought a Sept 17, $27.50 put on RIMM on Thursday at $75. I sold it on Friday for $425. If I was riskier I could have put $7500 out and made $42,500. In 18 hours.

            No inside information, I just believed that RIMM was going to go down - like a lot of other people - yet them market was not efficient enough to see this drastic change.

            • by Trepidity ( 597 )

              I don't think Wall Street really believes in efficient markets. A large part of what investment banks do (on the "prop trading" side) is attempting to exploit market inefficiencies via various kinds of arbitrage plays.

              • A large part of what investment banks do (on the "prop trading" side) is attempting to exploit market inefficiencies via various kinds of arbitrage plays.

                Thereby, making it efficient?

        • First, the guy is accused of fraud, which implies that maybe he was not complying with the firm's risk monitoring system. (No proof of that yet.)

          Second, it's not as easy as you think.He was on the derivatives desk, which can be tricky but can be handled. He was a UBS, which is in multiple markets, which is another curve ball. American options need to be handled one way, European options a slightly different way. It can be hard to sum all of these positions.

          Which is why I don't like the summary. For credit

          • And it is worth noting that European and American options don't refer to the market they are available on, you can get both types on both markets. European options can only be exercised on the expiry date, whereas American options can be exercised at any time.

      • by DarkIye ( 875062 )

        Wouldn't that make people far too accountable?

      • by JamesP ( 688957 )

        There is no "problem". Any investment bank that is not actually retarded has realtime systems that monitor overall risk of the entire bank it's, any given branch and any given desk.

        Yes, they would probably have that, if IT wasn't so retarded and took ages to 'test' the solution. Of course, the crap they install in the computers is approved right away.

      • That's the theory and yet all these major banks keep coming out with these rogue traders and that's only the losses big enough that the general public hears about them. Let's face out out on the terrain no-one is holding these guys accountable. IT may set up the system, Risk Management may generate the reports and they'll be either modified to say what management wants to say or just plain ignored because like all gamblers these guys think they have a system which lets them keep on winning even as they are

    • by TarPitt ( 217247 )

      And the culture in these organizations celebrate risk-taking, and handsomely reward those who take huge risks, and will do anything to resist restricting those "heroes".

      No organization like this is going to restrict their "heroes" and money-makers with automated software that tries to second guess trading patterns.

      I'm saying this as someone who was asked to leave the HR VP's office of one of these organizations for suggesting that compliance with security policies be part of annual performance review. Quot

  • by PolygamousRanchKid ( 1290638 ) on Saturday September 17, 2011 @06:42AM (#37427802)

    When a financial boo boo occurs, and IT is involved, it's IT's fault.

    When a financial boo boo occurs, and IT is not involved, it's IT's fault.

    Computers have a tough time defending themselves, so it is easy to pin the blame on them.

    Maybe Watson, IBM's Jeopardy champ, could handle this:

    "What . . . is a 'Scapegoat'?"

    • by dintech ( 998802 )

      Have you every heard the phrase "the customer is always right"? I'm not saying that they are and clearly not in this case however in banking, as in a lot of environments where you have only a small group of users, this is often how things play out.

      If you're independent and not part of the same company, you can always invite blame-oriented clients to take their business elsewhere. If you tried that in a large company, the only person going somewhere else would be you.

      Agreed it sucks, but at least UBS IT bonu

    • by prefec2 ( 875483 )

      We have a saying (which loosely translates to): When the boor can't swim, then it is the swimsuit's fault.

    • by msobkow ( 48369 ) on Saturday September 17, 2011 @07:49AM (#37428006) Homepage Journal

      The blame should be placed squarely on the shoulder's of the bank administrators. There is absolutely NO EXCUSE for not noticing a 2 BILLION DOLLAR LOSS.

      It's not the computers.

      It's not the traders.

      It's not the system.


      And it's high time that those lazy incompetent greedy bastards were held RESPONSIBLE for their incompetence instead of getting "bonuses."

      • And it's high time that those lazy incompetent greedy bastards were held RESPONSIBLE for their incompetence

        They will. Oh, how they will! This year they'll only get 95% of the bonuses they got last year. That'll teach them!

        • And it's high time that those lazy incompetent greedy bastards were held RESPONSIBLE for their incompetence

          They will. Oh, how they will! This year they'll only get 95% of the bonuses they got last year. That'll teach them!

          You forgot to factor in dollar value adjustment. The bonuses will be 200% of last year's.

          Fault? The people under "them" that did the math on the bonus/dollar ratio. Fault equalized. Innocent. :> /snark

      • by Hatta ( 162192 )

        I would bet you anything that this "rogue trader" was tacitly, if not explicitly, encouraged in his behavior. As long as he kept getting lucky, everyone profits. As soon as his lucky streak ends, he's a rogue trader.

  • lack of liability (Score:4, Interesting)

    by azalin ( 67640 ) on Saturday September 17, 2011 @06:45AM (#37427812)
    In my humble opinion the attitude in the finance sector has to change away from gambling and back to investing.
    Btw. How comes those people only get bonuses and not fines to?
    • by prefec2 ( 875483 ) on Saturday September 17, 2011 @07:06AM (#37427884)

      Because that would be fair. The whole thing is to privatize profits and let the public pay the bills. And by the way there is too much money on the market to really invest all that money and get something in return. But it is not only the financial market. You can found companies and relay responsibility for bad business decision to the banks, stakeholders etc. To make things right, the size of organizations in the financial and business area have to be limited.

    • by satuon ( 1822492 )
      There is always risk when investing that the enterprise might fail. You don't know the future, so you can't have investing without some degree of gambling. Risk have to be taken in real life too, not just in the casino.
      • by sjames ( 1099 )

        Sure, there is always risk. Investment is when you attempt to limit that risk by studying the company involve. What are it's liabilities, it's assets. What does it DO and what is the general outlook for that line of business.

        Of course, you won't be doing that sort of research on a stock you'll hold somewhere between 3 milliseconds and 1 day. At that point, you're more card counter than investor.

    • by Xugumad ( 39311 )

      > Btw. How comes those people only get bonuses and not fines to?

      The bigger question should be about level of bonus. An institutional trader is generally accepted to be taking less personal risk, than an individual trader, and that's fine, but should be paid in proportion to the risk relative to the risk taken on by their employer. As it stands, there's a trend towards "I made $BIGNUM for my employer so should get a sizable fraction of that as a bonus" without anyone going "Okay, but what was your employe

    • Actually, in this case, Adoboli will go probably to jail and the compensation of bonus-eligible UBS employees will be reduced by a sizeable amount. That's basically like a fine, whether or not you think they make too much money in the first place.

  • by igreaterthanu ( 1942456 ) * on Saturday September 17, 2011 @06:45AM (#37427816)

    Any entrance level programmer could make a system that alerts a superior of the performance of one of these people.

    Say an alert when the losses are over $100,000 then over $1mil, $10mil, $100mil, etc. or maybe after 50 losses in a row.

    It says a lot about this bank that this wasn't caught earlier. An alert should have been triggered far before the losses got to the 2bn mark.

    • Re: (Score:3, Informative)

      by tqft ( 619476 )

      The problem isn't detecting the loss after the event the problem is predicting 23 sigma moves.

      http://www.zerohedge.com/contributed/ubs-and-big-trade [zerohedge.com]
      The trade was profitable until the SNB capped the CHF , capping the trade and trader in the process. At least that is a reasonable working hypothesis. Everything was fine until a week ago. What happened then? The Swiss National Bank announced a cap of their currency vs the Euro.

      Why did he have such a large position ? That Risk & Management MUST have known

      • by julesh ( 229690 )

        The problem isn't detecting the loss after the event the problem is predicting 23 sigma moves. [...] Why did he have such a large position ? That Risk & Management MUST have known about.

        A few things occur: if it really was a 23 sigma move (I haven't been watching the markets lately, so didn't know what was going on), then the fault really is neither the trader's nor particularly the management of the bank's, but rather the entire industry's. We're talking about an international system of de-facto standard risk management that assumes the worst net losses these traders will sustain is around 5 * sigma. If he'd lost what the models predict he was risking, which is to say about $400 million

        • Re: (Score:2, Insightful)

          by Anonymous Coward

          if it really was a 23 sigma move

          It can only have been a "23 sigma" event if the model by which such statistics are established was utterly irrelevant.

          This is the systemic problem with banking... the "risk control" is quite sophisticated - but it takes a narrow view of what constitutes risk... and, hence, no-one should be surprised when real-world risks are spectacularly under estimated. A cynic might argue that the whole subject of risk management is an elaborate illusion to give the impression that risks are being taken seriously. The

          • bugs are declared whenever any sequence of events is established that would, theoretically, lead to an unacceptable outcome. It's considered "too cowboy" to argue that a bug doesn't exist because the client hasn't get generated that sequence of events in the live system. Conversely, this is exactly how risk management works for financial risks.

            That is a very interesting perspective. In this particular case, though, it is likely Adoboli bypassed risk systems, booked fake trades a la Nick Leeson, or set parameters to hide the risks. In this case the proper analogy is something closer to making systems robust to, say, SQL injection attacks, which of course we know not all programmers do even when they should.

      • Re:You think? (Score:4, Informative)

        by NoOneInParticular ( 221808 ) on Saturday September 17, 2011 @09:05AM (#37428254)

        You do realize that a 23 sigma event implies the belief in a risk model where an event like this will happen once every 10^112 years?!! You also do realize that the entire financial sector is using these risk models, and are therefore still assuming that 23 sigma events will only happen once every googol lifetimes of the universe? A hedge like this, that will only fail once every googol universes as predicted by economics (and is thus a safe bet on the surface), tends to fail every few years.

        Sigma measurements of risk is intellectual fraud, on a scale that is costing us billions.

        • People who think the financial sector is using only these multivariate normal risk models (if I correctly interpret what you mean by "sigma models") are incredibly naive. Many of them have read and believed the books by N. Taleb, which I find tragicomic.

          You may have noticed that thousands of extremely smart mathematicians and physicists have been hired by the financial sector over the last decades. Do you really think all those clever people somehow missed something so blindingly obvious?

          As I've said else

          • I'm sorry, but all the smart mathematicians and physicists in the world can only derive better models and better algorithms. What the financial sector seems to have failed to do is to employ enough psychologists. Taleb isn't wrong; he has pointed out that the models cannot account for random political events, for psychological forcing, or natural disasters. The probability of these cannot be reliably assessed.

            On the other hand, psychology has a lot to say about the arrogance of psychopaths who assume that

            • by mbkennel ( 97636 )

              "I'm sorry, but all the smart mathematicians and physicists in the world can only derive better models and better algorithms. What the financial sector seems to have failed to do is to employ enough psychologists. Taleb isn't wrong; he has pointed out that the models cannot account for random political events, for psychological forcing, or natural disasters. The probability of these cannot be reliably assessed."

              So, can psychologists assess the probability of these events better than mathemeticians and physi

          • Re:You think? (Score:4, Interesting)

            by NoOneInParticular ( 221808 ) on Saturday September 17, 2011 @12:42PM (#37429396)

            I'm arguing against people equating risk with sigma, and in particular those who say that there's a problem predicting 23 sigma moves, as if that's saying something about the likelihood of the event occuring. I'm also arguing against the financial sector who is still using sigma (and beta, and the entire apparatus of mutlivariate statistics) as something that can be used in practice. You are arguing that the financial sector has moved on, but have they? Are they truly beyond the Gaussian assumption, have they really moved away from Value at Risk models, is Black-Scholes truly abandoned, are standard risk-of-ruin calculations abandoned, or are they still trying to fix Gaussian models with martingale and jump dynamics as they were doing last time I looked into it. What has replaced the entire apparatus that wreaked havoc 5 years ago? I still see bailouts on the horizon, banks very highly leveraged, and a sector that has reasoned away risk using the same flawed arguments that have been en vogue for the past 40-50 years.

            You are seriously arguing that this has changed? I've worked at hedge funds, I am working in risk management, the assumption of normality is the only game in town. And yes, I am arguing that all those extremely smart mathematicians and physicists are missing the obvious, simply because they are doing what they were hired for: to create models. Stating that we don't have the mathematics to do the job will not land you a position as a quant. They'll hire someone that will try the best they can: steer a car by rearview mirror, driving in the ravine at the next haircut. All we do is drive a little less fast.

            I guess that on the trade floor there might be a few that get it and are using algorithms that do assume that they can lose everything at any time and for instance only trade in options, but at the macro level, capital requirements are still stated in risk weighted assets. Options are still being sold. Individuals and banks are still going naked (leveraged) long. Risk is still assumed to be log-normal. Textbooks are still printed stating this as a fact (not as an assumption). Have you seen a shift in teaching economics, away from multivariate stats? No, as nothing has changed.

            • I worked in risk management in electric power trading till I got sick of the weasels in suits.

              VAR etc are a lens you use to look at an issue. You don't have to use Black-Scholes to generate your greeks. Aggregating greeks * expected deviation is not a forecast of expected gain/loss. It is an _approximation_ of your portfolios sensitivity to the underlying value (depending on which greek you are adding up).

              In power trading we had all sorts of other risks. Scheduling (where the power could actually not b

          • So please tell me, what is the financial sector using these days, if not risk models that are ultimately dependent on a (log-) normal assumption? What fundamental shift has happened that threw away 50 years of economic theory forming? What has replaced it? And as for smart people missing the bleeding obvious: Mandelbrot showed empirically that they were completely wrong more than 40 years ago. This was highly publicized, accepted as correct, and the smart people ignored this because Gaussian fairy land is
            • by mbkennel ( 97636 )

              Neither academics or practicing quants actually use thin-tail Gaussian models for practical pricing.

        • A 23-sigma event can become a 1-sigma event simply by changing the probability distribution your models use. The problem isn't really the math...sigma measurements of risk *DO* work, it isn't intellectual fraud. The problem is that the banking industry's decision-makers are willfully misusing the math because they do not want to accept what the proper models tell them. It is extremely, extremely, enticing to keep using a Gaussian distribution in your big snazzy exotic barrier option valuator rather than t
          • The intellectual fraud lies in the empirics: the statement that second moment statistics can be reliably estimated based on data. Yes, today your models say that the event that is about to occur is so unlikely that you don't even have to consider it. It is 23 sigmas! Tomorrow, using exactly the same method, your model will tell you that your 23 sigma event is a 5 sigma event. The mathematics is just the mathematics -- what is wrong is the statement that the Gaussian (or even the t-distribution) is a good m

            • You've just rediscovered stochastic volatility. A few people got the Nobel prize for work they did decades earlier.

              Yes, the assumption of strict normality and constant variance has been falsified a long time ago. Nobody pricing even vanilla options will use these. It's obvious from the implied volatility smile (which wouldn't exist in the classical case).

        • he got wiped out by the peg of swiss frank to euro. it's a 1 time political event. there is no realistic way to quantify political risk.
          • Yes, you get it. There's no way to quantify this 1 time event, nor is there a way to quantify all these other 1 time events that happen all the time. There is no meaningful difference between a so-called 23 sigma event, and a 5 sigma event. The math fails in the tails, and assuming that you're safe against one time events is what is causing most of the mayem in the financial world.
          • The Swiss National Bank had previously been complaining about the value of the franc and had, within the year, previously intervened to raise EUR/CHF, but the intervention didn't stick then. This time they promised a much more forceful and permanent intervention and for some reason the market believed them this time instead of trading against them like previous times.

            So the fact that the CHF would be subject to national bank intervention was hardly an unpredictable 'black swan'---it was an ordinary grey p

  • is that the term they use now for a scapegoat to use as an excuse for lax banking & investing policies?
  • by SebZero ( 1051264 ) on Saturday September 17, 2011 @07:06AM (#37427886)

    I think that such a rigid system would prove to be a double-edged sword and would ultimately not be adopted in some institutions. It requires precise tracking of what each trader "bets" vs their losses and the application of rules to stop them from losing too much. This is data that can find its way into the outside world in the case of scandals such as this and I'm not sure investment banks would want a perfectly documented account of losses becoming public. They play a game of high-stakes risk on a daily basis, under the respectable cover of expensive premises and thick financial service books.

    A friend of mine who is in what most of us would call an extremely well-paying profession told me about a highschool friend of hers who worked as a trader in London and retired at the ripe old age of 42 to live in an amazing appartment with waterfront views in central London. I was grumbling about banker-types making phenomenal money and being nowhere near as intelligent as doctors/lawyers/engineers, to which she replied, "Of course they're not the brightest, they're certainly not dumb, but they're wired different to you or I - they're risk-takers. What they do with large sums of money on a daily basis, is gambling in a casino where 'the house always wins' isn't always the case. Normal people put in their position would not take the risks they take for fear of losing"

    You can potentially win big, lose or stay the same - but some of these institutions trade retirement funds or government health funds. Governments tend to have inquiries if things go wrong and not having an exacty record of how a system broke down allows the bank face while they use the trader as the scapegoat for everything that went wrong.

  • by RobinEggs ( 1453925 ) on Saturday September 17, 2011 @07:16AM (#37427906)
    I remember a highly compelling thought experiment published in the New York Times editorial page, back when the economy was first going south - a though experiment which, the authors later revealed, was more real-world practice than experiment.

    The way big risks and 'trendy' trades often work is this: if a certain method of investing your pool looks good and other traders in the firm are making big money on it, you have two choices. You can go against the prevailing wisdom, but should you lose then you're the idiot who lost $10 million and you're fired. You can also go with the trend, in which case either you all win together or the entire company (or entire economy) goes down in flames and you're no worse off - in reputation or employment - than anybody else.

    My point for bringing this up is that it's not about random idiots going nuts; even if that happens it's just one idiot or one company that dies, and at least they're all the 'rogue' idiots are effectively sociopathic, conflicting entities. The real damage comes when every trader agrees on things; sooner or later it's all coming down, and the rest of us go down with them.

    So frankly I think it's *great* news that this guy lost $2 billion; at least it means UBS isn't so locked-down that individual traders can't take risks. Better they learn from giving traders too much freedom than we all learn from them being given or being taught too little.
    • by tukang ( 1209392 )

      The fact that the guy lost $2 billion is not good in any way for UBS. You seem to be arguing that it's a good thing that this guy bet on a different direction but the direction is irrelevant, it's the magnitude that's astonishing. Traders are not allowed to put so much capital on the line, the fact that he was able to invest so much capital almost certainly means that fraud was involved. Kerviel, Leeson and others all forged papers or electronic records to perpetrate their fraud. The usual formula is they s

      • It was not good for UBS, but IMHO it was good for the system. This is an example of moral hazard in action - that principle that was violated by at least some of the US bank bailouts.

        As for the size of the loss, forex trading tends to be very highly leveraged, so it's possible to have a hypothetical risk of 100 or more times the amount of a transaction - but with a very low probability of that risk occurring. The risk is not a single number but a probability density function (like a gaussian) with a very

    • At a fundamental level, a bank is nothing more than an engine of greed. I don't mean that in a derogatory sense: I mean that a bank is a simulation of the human emotion of greed. As such, it has the capacity for both great good and great evil. Left to its own devices, a bank will naturally seek to absorb all available value in an economy for its shareholders -- that's what I mean by "a bank is an engine of greed". Because of that, banks critically depend on regulations to tailor and guide their behavior
  • by Spy Handler ( 822350 ) on Saturday September 17, 2011 @07:35AM (#37427970) Homepage Journal
    the world was doing just fine without these "investment banks" gambling with billions of your money while dreaming up drivel like "mortgage-backed security derivatives"

    I'd shut them all down and put the CEO and CFO and the rest of the O's, all of them, in prison.
    • When handled correctly, "mortgage-backed security derivatives" are economically equivalent to the title insurance required when you buy a house.

      Your statement about C-level executives is exactly equivalent to someone saying "Those kids who listen to rap are all a bunch of murderers, cop-killers and junkie-thieves. We should put them all in prison." It's a facile, self-serving, 'classist' and ignorant statement.

      Just as almost any demographic group, the vast, vast majority of C-levels are good hard-working

      • What line of work are you in? I need to get there.

        • Oddly enough, these days I"m a computer geek writing web-based data mining systems.

          In the past I've been VP of R&D for a bleeding edge startup, project scientist in the Robotics Institute at CMU. After CMU, I was control systems manager for a nuclear maintenance robotics company, and product manager for a pretty cool document management software product for the NeXT computer. I once spent the entire afternoon watching Steve Jobs tear apart our user interface and tell us how it ought to be done - and

          • Sweet, bro. I'm in AI so CAS is something I use constantly. Nice to meet ya!

            • I wish I was. I thought my present job was going to involve some interesting machine learning but it's much more mundane. I'm starting to feel stale. I _really_ want to be stretching my brain around neural networks and such. I was teaching myself Erlang for a while (it has a really nice approach to dynamic clustering, although it ain't the fastest out there) but I've kinda slacked off on that. I haven't decided what to do about it.

    • umm... they gamble with billions of THEIR money. not YOUR money. you suffer when they lose because they can't lend you THEIR money anymore.
  • The original report is most likely nonsense. [slashdot.org]

    I don't believe that this was just what is reported.

  • Putting in place restrictions to prevent illegal trades will also catch those who are making money at it.
    Funny how we only hear stories about illegal trades that result in huge losses - people are never prosecuted for successful illegal - excuse me, "unauthorized" - trading.

    • it's not illegal. the trades were not authorized by the bank itself (ie, the owner of the capital the trader was spending). the crimes that he is charged with do not stem from illegality of trading. he is charged with false record keeping.
  • If American Express and Visa can mine transaction data and put a stop order on credit cards when you unexpectedly buy gas out of state, it seems like there could be patterns to watch for when the amounts are in the billions, too.

    Apples to oranges in a lot of cases. Credit card transactions have huge volume, are fairly similar, and its relatively easy to see if someone is making a purchase that is unusual for them. There is a lot of data to compare against. Investment bankers sometimes do routine trades but they also invest in all sorts of complicated ways that aren't routine and that really can't be evaluated for statistical anomalies. Not to say they shouldn't use IT to track what they are doing but it is not nearly as easy as

  • Buying gas out of state is not cause to decline a card when there's a big charge from U-Haul on the same account. In fact, that's probably the worst time to decide to start declining your customer's charges.
  • IT will not catch anyone. They do not have neither authority nor knowledge of applicable risk limits. Authority to control traders risks are granted to "risk managers" (duh!) This loss is an abject failure of a risk manager that was assigned to monitor the trades. Unless the trader cooked the books to hide what he was doing as in SocGen case of last year the risk manager deserves to be thrown out of his job with black mark and put in jail for long time.

  • Wake me when the IT department finds out which affiliate of the bank profited from the "rogue trader". This is becoming standard procedure. The "losses" get woosh'd to another branch, one guy takes the blame, a department gets threatened to be axed, and somebody on the executive rollodex gets a big_ass_bonus.

  • this is what outsourcing get's you people so far away from the what the company does or have so many levels of contractors / sub contractors that you get people who have no idea about stuff that are big for that company / site VS the standard IT outsourcing / contracting plan.

  • credit cards only have to find dubious transactions in a sea of transactions where all transactions are independent. the fact that you buy a sweater does not reduce the price you pay for your car. The risks in financial transactions are generally very much hedged. So the fact that you have bought item A may, in fact, have reduce the risks involved in buying item B.
  • Seriously ... the fraud was discovered Wednesday with arrests following overnight and the suspect made his first court appearance yesterday. Even the prosecutor has said that he doesn't even know if the suspect profited from his actions.

    Almost no confirmed details have been released and yet every Tom Dick and Harry in cyberspace knows exactly what happened and has a simple fix whether it be regulatory, managerial, coding changes or a combination of all three.

    To trot out the usual car analogies ... this is

Enzymes are things invented by biologists that explain things which otherwise require harder thinking. -- Jerome Lettvin