Did SocGen Crash the Markets and Dupe the Fed?

Massive sell-offs might have exacerbated Monday's losses
By Jason Farago,  Newser Staff
Posted Jan 25, 2008 8:55 AM CST
Daniel Bouton, CEO of French bank Societe Generale, reacts during a press conference at the bank's headquarters, Thursday Jan. 24, 2008, outside Paris. Societe Generale said Thursday it has uncovered...   (Associated Press)
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(Newser) – When Société Générale execs uncovered the scale of rogue trader Jérôme Kerviel's fraud last weekend, they had no choice but to unwind his positions. And while they did warn French regulators, SocGen kept the Monday sell-off under wraps, to avoid even bigger losses than the $7 billion hit it took. So did the French bank's trades exacerbate the huge falls in the markets that day, asks the Financial Times, and trick the Fed into a rate cut?

Other banks—not to mention the Fed—were unaware that SocGen's trades amounted to 10% of the volume on European markets Monday. Everyone from the bank's CEO to the French PM denies that the sell-off influenced the market rout, which was already under way. But it may well have snookered the Fed into jumping into the rate cut: “It is now clear that the Fed was panicked into a 75-basis point rate cut by the actions of a rogue trader and the bank’s unwinding of his positions,” one fund manager tells the FT.