Cocaine Brain is what Wall Streeters say happens to a rogue trader who loses, doubles down, loses again, until he goes bust. The term began in Las Vegas, where cocaine-drenched gamblers would go deep in the hole trying to make up losses. Now it applies to traders working for banks. Given a limit of, say, ten million dollars, the trader loses, doubles down, then doubles down again exceeding his limit as he tries to make it up.
Today at a UBS Bank branch in London, a man named Kweku Adoboli lost two billion dollars. He’s under arrest. UBS, headquartered in Zurich, is calling him a rogue trader who did it under the radar. Only no one believes that two billion dollars can slip under the radar. It is headline business news but not a word about it on the UBS home page, what did you expect?
Except for the size of the loss, other traders say such trading is encouraged because traders are compensated by bonuses from winnings. Banks don’t mind as as long as money is being made, and a small loss can be ignored. But not two billion dollars. It happened, oddly enough, on September 15, the exact date of the 3rd anniversary of the bankruptcy of Lehman Brothers.
Time was when banks were not allowed to trade for themselves. Then came deregulation, and now banks, once the soul of fiscal restraint, are like Nick, the Greek, although he went through only half a billion in his lifetime. It’s a good deal for banks who can gamble as long as they win, and when they lose, blame it on some hapless jerk they call a “rogue trader” and send him off to jail while screwing their halos on tighter.
Linking conservatism with deregulation is one of the great con jobs of our age. The present fiscal chaos developed only after regulations were swept away by so-called fiscally conservative Republicans who still bray for more deregulation. It invokes Murphy’s Law plus a couple of corollaries:
If something can go wrong, it will
If gambling is not prohibited, people gamble.
If blame can be shifted, it will be.