Huh???

SocGen is a leading provider of retail-oriented forward products, such as certificates and contracts for difference, and the implication is that Kerviel balanced his myriad long futures positions with hundreds of small fake forward positions — possibly listed as belonging to retail clients. But such forwards ARE subject to margin, albeit from the customer, who should have put it on deposit at SocGen itself.

That means that even before the positions turned against Kerviel, the bank would have had a mismatch between margin paid out to hold the futures positions and margin taken in to cover the forward positions — or at least margin on deposit to cover futures and margin on deposit to cover short forwards.

Someone higher up the SocGen ladder — perhaps someone sharing in the bonuses generated by the department — must have seen the mismatch and wondered why the bank was paying out billions in margin calls on futures positions for a trader whose margin was limited to €500,000!?!

And his answer — that they were balanced by forwards — prompted no one to peek behind the curtain of the little man in the corner?

Surely the fact that this one low-ranking trader would even have such a massive forward position on his books sent up red flags — whether the offsetting futures position was making money or not. The given answer: that Kerviel knew when he was being audited, and would dissolve his fake positions before an audit and then recreate them afterward — is hardly comforting.

Jean-Pierre Mustier, who heads SocGen’s investment banking division, says the scheme worked because Kerviel kept his individual trades small, and that supervisors had questioned Kerviel’s positions on several occasions, when individual trades got too large, but that he usually “corrected” the problem by either cancelling the orders or trimming the positions.

Well, yeah, the bank does have an automated risk management system that won’t let traders place orders higher than their limits — and that may be what he’s referring to — and perhaps his pathetic explanation that “Société Générale got caught just like someone who would have installed a highly sophisticated alarm … and gets robbed because he forgot to shut the window” will turn out to be true…

But experience has shown that sins of omission contribute more to events of this kind than sins of comission. If you see something fishy that may be putting money in your pocket, it could pay to look the other way, and brings little to go digging…

Mustier may not have known what was going on, but his dismissal of any conspiracy talk is disheartening. “If one trader can unwind this transaction, one person can make such a transaction,” he said in a weekend conference call, where he equated the simple act of unwinding the position to the complex task of building it up.

That statement is surely comforting to any passive or active conspirators who may be losing sleep over the prospects of an investigation — but it certainly doesn’t bode well for SocGen shareholders.