Kweku Adoboli has been convicted at Southwark Crown Court of two counts of fraud. He was said to have gambled away nearly a billion and a half pounds, but isn’t this what banksters and so-called traders do anyway?
Kweku Adoboli is now a convicted fraudster; this morning he was found guilty of one count of fraud while the jury deliberated over a further three charges. Later he was convicted on another count and given a seven year sentence. The opening of his trial was reported here last September. Frauds can be both simple and incredibly complex. Adoboli is clearly not the sharpest knife in the drawer, so it is not unreasonable to assume that his frauds - if frauds they were - were simple. In her opening speech, Sasha Wass QC told the jury at Southwark Crown Court that Adoboli had blown around £1.4 billion, and that “This colossal loss arose purely as a result of Mr Adoboli’s fraudulent deal making, which amounted, as you will see, to nothing more than gambling.”
What Miss Wass, the police, the CPS, the judge and the jury all appear to have missed is the now well known fact that this is what banksters and traders do. He engaged in “unprotected, unhedged, incautious and reckless” trades. And?
If you give your money to a so-called investment fund, you will see in the small print (if you take the trouble to read it), this phrase or something similar: “The value of an investment in the Fund can go up or down. When you sell your units they may be worth less than you paid for them”.
This is not there as an advertising gimmick, it is a legal requirement. There is a widely held myth that investment funds, traders and so on, know what they are doing, that they are experts, but they are not, because what they do is gamble - all day - just like Kweku Adoboli. They buy shares or whatever at price A and hope to sell for A+B, then they do the same thing over and over again. it doesn’t matter how you dress this up, you can call it analysis, profit taking, selling short, hedging, but at the end of the day, it is gambling pure and simple. And that means there must be both winners and losers, because the only way everybody can win is if someone produces something, and nothing is produced by this sort of trading, nothing. If one trader makes a profit, it is as the expense of another.
Consider how this is different from a real trade, which need not involve money. Imagine you have a hole in your roof, and you say to the builder who conveniently lives next door, can you fix it for me? Certainly he says, what can you do for me? You have an allotment, and you arrange to trade him a sack or two of potatoes and some carrots in return for his fixing your leaking roof.
No one has lost anything, indeed you have both gained. He feeds his family, and you go to bed at night safe in the knowledge that you won’t wake up in the morning to find your house flooded. Now how is that different from a bank trade? Banker 1 buys for A sells to Banker 2 for A+B who sells to Banker 3 for A+B+C who sells to Banker 4 for A+B+C+D. This cannot go on indefinitely. At some point, somebody in the chain is going to have to sell for a loss.
Make no doubt about it, if Adoboli’s “magic touch” as it was called had paid off, no one at his bank, UBS, would have complained, indeed he would probably have been fêted as a hero.
Also it should be borne in mind that if his bank is unhappy the way things turned out, he must have made someone else very happy indeed.
Did he deserve to be convicted, and does he deserve such a sentence? Probably, but with one big caveat - so does everyone else who does the same job, including the trader or traders at Abbey National (now Santander) who were given £11,000 by a retired woman to invest in a fund, which they turned into £5,000 for her.
The solution is to wind up all these funds and return all the monies to the individuals and companies concerned to allow them to manage their own accounts, failing which they can pay it into a government fund that will not trade but simply pay money in and out on demand to the fund holders. People like Adoboli and his ilk produce absolutely nothing, and are in effect stealing the world by shuffling around bits of paper.
[The above op-ed was first published November 20, 2012.]
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