NYTimes, Société Générale, & Me

Saturday, January 26, 2008 | 11:30 AM

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When it rains, it pours: Last night, I actually spoke with a reporter (novel idea) about a piece he was writing on Société Générale, the market sell off, and the Fed.

It was based on Fed's Folly: Fooled by Flawed Futures?, the discussion we had with clients about the panicky 75 bp Fed cut.

Its a pretty big quote. Here's an exerpt:

"Société Générale rushed to unwind those trades during Monday’s market plunge, and trading in those futures contracts soared to record levels. The bank’s abrupt reversal contributed to a decline that snowballed into an avalanche of sell orders around the world, some traders said. The ensuing turmoil helped prompt the Federal Reserve to orchestrate the surprise cut in interest rates announced Tuesday.

“I have little doubt that Société Générale’s unwinding of those positions absolutely pressured indexes worldwide,” said Barry L. Ritholtz, chief executive of FusionIQ, a New York-based investment research and money management firm. “And wouldn’t it be embarrassing if the Fed had to make one of the biggest emergency rate cuts ever because of some rogue trader?”

Granted, fears of a recession in the United States and continuing worries about the spread of the subprime mortgage collapse were also responsible for the market downdraft in the last 10 days. But Mr. Ritholtz argued the rapid move by Société Générale to close out tens of billions in futures positions might have been a major factor in pushing an already nervous market into an outright panic.

Mr. Ritholtz is not alone in his suspicions. “I definitely think there is a link,” said Byron R. Wien, chief investment strategist at Pequot Capital Management and a 40-year Wall Street veteran. “This precipitous unwinding created the negative momentum that spread around the world.”

Mr. Wien also singled out the Federal Reserve chairman, Ben S. Bernanke, for criticism. “Bernanke has been reacting to events, rather than anticipating them,” he said.

On Monday afternoon, with United States markets closed for Martin Luther King’s Birthday, Mr. Ritholtz said, many Wall Streeters were struggling to figure out just why Europe and Asian markets were off so steeply. “Instant messages were lighting up, and people were saying ‘This looks like a big European hedge fund blew up.’ ” Indeed, there was little market-moving data before the plunge."

Not too shabby . . .


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Source:
Société Générale’s Sales May Have Incited Market Plunge   
NELSON D. SCHWARTZ and NICOLA CLARK
NYT, January 26, 2008
http://www.nytimes.com/2008/01/26/business/worldbusiness/26bank.html

Previously:

Fed's Folly: Fooled by Flawed Futures?   
Thursday, January 24, 2008 | 10:15 AM    http://bigpicture.typepad.com/comments/2008/01/feds-folly-fool.html

Saturday, January 26, 2008 | 11:30 AM | Permalink | Comments (80) | TrackBack (0)
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Comments

Barry,
As much i hold FED responsible for the current
mess, i think Bernanke did the right thing.It was a zugzwang.The foundations of the house of cards are trembling.When panic starts and JPY
pushes below 100 1929 crash might seem benign in comparison with what may unravel.
Trillions of dollars of speculative positions may have to unwind.
I am afraid not even you still appreciate the severity of the problem. Bernanke finally got it.But it will not matter much.

Posted by: kaan | Jan 26, 2008 11:55:04 AM

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