Don’t Get “Vaporized”

Rogue traders making risky gambles with other people’s money are in the headlines again. How can billions of dollars disappear? What should we learn from these fiascoes?

How exactly does one “vaporize” $1.2 billion? For most of us reading this blog, the question seems preposterous.

And yet “vaporized” it reportedly was, or at least a “significant amount” of the total (“Funds From MF Global Feared Gone,” The Wall Street Journal, Jan. 30, 2012). MF Global, a U.S.-based brokerage, filed for bankruptcy on Oct. 31, 2011, just one week after assurances were given to Standard & Poor’s that the financial institution had “never been stronger” (Bloomberg.com, Jan. 30, 2012).

Will the money ever be recovered?

So how did $1.2 billion go missing? Press reports suggest that a “customer segregated account,” designed to be kept separate from the brokerage’s own assets, began to be used to meet demands for more collateral. The company reportedly spiraled down in ill-advised transactions during the days and months prior to its bankruptcy filing.

Now its court-appointed trustees, as well as some congressional investigators, believe much of the money will never be recovered. U.S. customer money invested on foreign exchanges remains frozen, meaning that to date customers have no access to what little is left.

UBS losses even bigger

Yet MF Global is apparently not alone in “vaporizing” the money of its clients. The same issue of The Wall Street Journal carries another article about alleged rogue trading at UBS (the United Bank of Switzerland), which reportedly cost the bank some $2.3 billion in losses! A former London-based UBS employee has been arrested, and British and Swiss regulators may now initiate proceedings against the bank for the unauthorized (and hugely damaging) trades.

The mind boggles at the sheer scale of these losses. Billions of dollars “vaporized.” How? For most of us, the prospect of “vaporizing” even a few hundred or thousand dollars in an expensive shopping spree or indulgence in the most costly dining is probably the most we have ever even thought about—and may never have done or do!

Yet we seem to live in an era of financial abuse, high-flying get-rich-quick schemes that explode when enormous amounts of money disappear, or are “vaporized.” The irony of that word would be appealing were it not for the fact that honest people seem eventually to foot the bill for such enormous abuses.

Remember Nick Leeson?

This “vaporizing” of assets isn’t new. Remember Barings Bank? The oldest London-based merchant bank collapsed in 1995, after speculative trades from its Singapore branch brought it down.

Nick Leeson, the convicted perpetrator of some 827 million British pounds ($1.4 billion) in losses, was convicted and held in a Singapore prison for more than four years, after which he was freed and returned to the British Isles. Now living in Galway, Ireland, his main source of income is giving speeches where he advises companies about risk and responsibility (“Nick Leeson Lecturing Others on the Current Recession,” The Daily Telegraph, Jan. 8, 2009). Not a bad reward for having “vaporized” millions!

It’s all pretty discouraging to those who work hard to make an honest living. It seems the enormous wealth in the industrialized world’s economies is simply too tempting to prevent these abuses. Apparently many believe the way to “get ahead” in life involves these giant get-rich-quick schemes, at the expense of others.

Wise voice of caution

Yet despite these appearances, wiser voices caution us against such greed and ill-gotten gains. As wise King Solomon warned some three millennia ago, “A faithful man will abound with blessings, but he who hastens to be rich will not go unpunished” (Proverbs 28:20). The second part sounds like Nick Leeson, doesn’t it? Or the detained UBS trader. In light of recent financial scandals, these ancient words of wisdom become prophetic.

This, of course, behooves us all to work hard and beware questionable get-rich-quick schemes. “Wealth gained by dishonesty will be diminished, but he who gathers by labor will increase” (Proverbs 13:11). Hard work and honesty ultimately do pay off, and they bring lasting benefits!

So let’s beware the get-rich-quick schemes. And let’s not allow our families’ assets to be “vaporized”!

Ralph Levy is a minister of the Church of God, a Worldwide Association, who grew up in England and now lives in the United States. Dr. Levy enjoys reading, travel and foreign languages. He has a Ph.D. in biblical studies and has worked in foreign language and religious education for much of his life.

Related links:

• The Money Mess
• Economic Stability Is Coming!