I of course can’t prove it, but my strong suspicion is that Steve Randy Waldmann has the curious intractability of the “rogue trader” problem about right. These rogue traders are out there because their bosses don’t want to know what they’re doing. I never get a “rogue burrito” at Chipotle because the management wants people to get burritos that are rolled properly. But suppose the management wants people to obtain the kind of high returns that can only be achieved through unduly risky trades. Well, you can’t very well issue a directive telling people to make unduly risky trades. You certainly can, however, create circumstances under which incentives, control, and supervision are structured so as to make it the case that “rogue traders” will pop up here and there and then there rogueishness can be blamed ex post for undertakings that go badly.
I was always struck in college, watching people head off into the field of finance, by the mismatch between the demographics of the folks who’d go be bankers and the stated desire to manage risk. If I’m conjuring up in my head a vision of a prudent risk manager, I’m thinking maybe a mother of two. Someone smart, of course, but also someone who’s cautious. Someone who sees the whole field. Someone who juggles. I’m not thinking “young smart arrogant dude with limited practical experience and a burning desire to get ahead.” That to me sounds more like a rogue trader!
It’s no surprise to read that “Kweku Adoboli traveled from Ghana to Israel to a Quaker boarding school before attending a leading university in Nottingham, England. With his education pedigree, he landed a coveted job at UBS, the giant Swiss bank, right after graduation.” Dude sounds like a real go-getter destined for big things. The kind of guy who won’t take no for an answer. The kind of guy who sees obstacles, and then sees ways around the obstacles. Admirable character traits in a wide variety of contexts. But if this is what you’re recruiting, then this is what you’re getting. It’s not “banking” like the really boring guy from the old movie trying to grind out a sliver of profit on a prudent lending operation.