2008-1-31
This is the VOA Special English Economics Report.
Last week, France's second largest bank, Societe Generale, announced that a single, middle-level trader had caused the bank to lose over seven billion dollars. It was the largest trading loss by an individual in banking history.
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Jerome Kerviel reportedly made trades in European stock index derivatives. These complex investments are bets that stock indexes will rise or fall. Mister Kerviel's job was to place bets that indexes would both rise and fall. Doing this limits the risk of losing a lot. But it also limits gains. Mister Kerviel worked in a part of the bank that was supposed to take on little risk. The bank said Mister Kerviel took measures to avoid its risk controls.
Reports say Mister Kerviel found a way to hide the fact that he bet only on stock prices rising. He also hid the huge amounts of his bets from bank supervisors. When stock prices dropped, his financial positions, worth an estimated seventy-three billion dollars, had to be closed at a huge loss.
French government lawyers brought charges against the thirty-one-year-old trader on Monday. Mister Kerviel was charged with breach of trust and illegal computer activity. However, he was not charged with financial wrongdoing or false signing of documents. Mister Kerviel has denied that he tried to profit from his activities. His lawyer says he is being unfairly charged.
The bank said it only discovered Mister Kerviel's activities on January twentieth. But a government lawyer said exchange officials had warned the bank about the trader's deals late last year. The lawyer said Mister Kerviel told him he had started his activities at the end of two thousand five.
Many in the French government are pressuring the bank's chairman and chief executive Daniel Bouton to resign. Mister Bouton has offered to resign twice but both times the bank's board did not accept his resignation.
Some experts believe efforts by Societe Generale to close out Mister Kerviel's financial positions played a part in driving down European stock prices early last week.
In the United States, the Federal Reserve cut the federal funds rate for the second time in eight days. On Wednesday, the central bank cut the important interest rate by half a percentage point to three percent. The Fed said it is now more concerned about the slowing economy than about inflation.
And that's the VOA Special English Economics Report, written by Mario Ritter. I'm Steve Ember.