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From Fred Gehm: I hate to admit it, but Societe Generale’s losses are all my fault. In 1983, I wrote Commodity Market Money Management, which introduced quantitative technique to what was then the derivatives industry. Judging by recent articles on Societe Generale’s disaster, they were using techniques similar to the ones I advocated, only radically more sophisticated, to manage their risks. I don’t suggest that Societe Generale’s management or traders read my writings or even know who I am. But their attitudes and techniques they used were ones I advocated. Attitudes and techniques, not incidentally, that have become standard operating procedures in the futures, derivatives and hedge fund industries.
Quantitative techniques have several virtues. One is that these techniques are radically more precise than non-quantitative techniques. A second is that when quantitative techniques are used, character does not matter. As long as you wave your magic wand and chant the right invocation, the lead will turn into gold. It doesn’t matter what kind of person you are; whether you are good or bad, rich or poor, handsome or ugly, neo-conservative or sensible. Technique is all that matters. But the problem at Societe Generale was not that they used the wrong techniques, although sometimes, surely, they did, but that the techniques were not really used.
The proper techniques were not really used because Societe Generale had the wrong culture; it had what the New Y...................... To view our full article Click here
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