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Once a Crook Always a Crook

Posted 12-21-2008 at 03:36 PM by Cableboy
It seems to be the season for unearthing crooks. Not the normal crooks, but the economic crooks. Those that have by fraud, deception or corruption have cheated themselves to wealth at the expense of those who trusted them.

In Denmark, we have an interesting case of a certain Stein Bagger. He was the CEO of a company called IT Factory, which everyone considered to be a real star performer. Mr. Bagger absconded a few weeks ago in Dubai, leaving his business partners in a mess with losses of over 1 billion Danish krone (about $200 million).

He has since re-surfaced in Los Angeles and is at the time of writing being interrogated by the Danish Fraud Police. Well I am not saying he has done anything wrong - that is up to the courts to find out; however, it seems that all his 'wealth' was built on a lie. Everybody who drives around in a Porsche Cayenne or similar, has a steroid-pumped body, an Armani suit with a shaven head is now called a 'Bagger'. And there are plenty of them around.

Even more amazing is the Bernard Madoff story. Wow! how did he get away with that one for so long? Investors who knew nothing about risk, I guess.

My point is that I could have spotted these people using TraderMetrics. The temptation to cheat in the forex market is great, because it is relatively easy to do so. And if you cheat once, you will cheat again. I have seen people trying to find their way around the rules and the etiquette of the market. Unfortunately for them, this can all be spotted in the log files. Yes, I could have spotted Nick Leeson, Stein Bagger, Bernard Madoff and the rest with TraderMetrics.

Is the professional forex market 'straight'? It was when I was a part of it. The forex market followed the motto of the London Stock Exchange, namely Meum Dictum Pactum or 'My Word is My Bond'. This meant that when you dealt, by agreeing to the deal by saying 'done', there was no way back; you had dealt. Regardless of where the price moved afterwards, you could not rescind the deal.

Before electronic dealing systems, taped phone lines and audit trails, deals where made over the phone: big deals, in the tens of millions of dollar class. When you consider today's environment, it seems fantastic that Midland Bank, London could call Chase Manhattan Bank, Hong Kong, ask for a price for 25 million dollars against deutschmarks and agree a deal, which was 'done'.

Nobody flouted the rules; otherwise you were 'blackballed'. This meant that if you did not live up to the 'code' , you (and your bank) would become persona non gratia and find it impossible to trade. No bank would want this to happen, as a ruined reputation was very hard to put right.

In these days of electronic 'straight -through processing' (STP), there are no issues of 'welching' on deals; it is all there in black and white.

The market has certainly changed, where banks now have to comply to rules instead of trust prevailing. Sad. Billions of dollars changing hands without a single lawyer or contract involved.

We have certainly come into a period where the regulators will be looking at the markets to try and ensure that crooks will not thrive. I actually don't think that will be possible. Perhaps the banks and other financial institutions are employing the wrong types?

For bright, intelligent people, there is a good living to be had as a trader, whether in forex or any other financial instrument. When people get greedy, they cut corners. This is to the detriment of everybody. We ought to get back to more honest self-regulating marketplaces, where honour and integrity count.

I sincerely hope that all the crooks operating in markets are brought to justice. The scary thing is that with the likes of Bagger and Madoff, we may be just scratching the surface. As long as there are tax havens, there will be crooks, so perhaps the WTO should make it clear to these places around the world that tax havens, secret accounts, etc., will not be tolerated and threaten them with expulsion from the WTO if the persist and introduce sanctions; for example, banning travel abroad for the citizens of that country of blocking bank accounts for companies and citizens of that country in the major financial centers.

There we have it: my take of crooks and crooked dealing.

The motto of the ACI (Association Cambiste International - The Financial Markets Association) is 'Once a Dealer, always a Dealer'. I would like to adopt that with modifications - "Once an Honest Dealer, always an Honest Dealer".
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