Rogues of Wall Street

Introduction: A Risky Business

The managing director for risk fixed him with skeptical blue eyes, “you are probably the most dangerous person at this Bank”. I was incredulous. She wasn’t talking to a swaggering trader. She was talking to her supposedly close colleague, the Head of the Global Policy Office at the Bank. The discussion for the last hour had been about the need to strengthen global compliance policies for Sales and Trading in the aftermath of the 2008 Financial Crisis. Surely, I thought, the danger must lie elsewhere.

Why do I open with this story? In many ways it’s symptomatic of what was wrong at banks before and after the 2008 Financial Crisis. There were traders losing money hand over fist, in some cases, to the point of taking their banks over the edge during The Crisis, yet the MD perceived the greater threat as stemming from the Global Policy Office. Really? The pre-Crisis view was that traders should be left more or less alone by Risk and Compliance to work their magic. This did not work out so well in retrospect. After The Crisis a new belief took hold, almost as pervasive and erroneous as the “let traders be traders” view. The new belief was that rigorous enforcement of new policies and procedures would lead almost magically to prevention of wrongdoing. The MD, perfectly cognizant of this, was afraid that risk managers would retreat behind a bureaucrat’s desk rather than engaging with day-to-day activity on the trading floor and that the effects would ...