A 2.3 BILLION DOLLAR LOSS—“WITHIN THE NORMAL BUSINESS FLOW….”

A 2.3 BILLION DOLLAR LOSS—“WITHIN THE NORMAL BUSINESS FLOW….” I raised the question here whether the big banks are too big to be competent at performing the activities that banks have traditionally performed. The news that a trader for UBS, the giant Swiss bank, lost $2.3 billion is more evidence that they don’t. Even more troubling is the statement on the loss by UBS: “The positions taken were within the normal business flow of a large global equity trading house as part of a properly hedged portfolio….” While smaller banks do encounter embezzlement, the scale of this loss is enormous—about twice the expected earnings for UBS for the third quarter and about 4% of UBS’s equity. Sarah Schaefer Munoz in the Wall Street Journal (September 17-18) quoted Richard Portes, Professor of Economics at London Business School on the subject of the $2.3 billion loss: “This is another example that risk control in banks as large and complex as the global investment banks is impossible.”

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