Ever since the news of the Société Générale bank fraud spread around the world, bank depositors and the general public are now wondering whether banks are part of the solution – or cause of the problem – of our current global financial crisis?
By: Vanessa Uy
As the French bank Société Générale prepares to close its offices for the weekend last January 25, 2008. A 31 – year – old Junior Executive Trader named Jerome Kerviel now dubbed as the “rogue trader” managed to loose a little over 7 billion US dollars worth of Société Générale’s funds by trading on the European Equities Market. An amount equivalent to 15% of the bank’s total assets or the amount the bank earns in an average fiscal year. The Junior Executive’s questionable action was defined as a fraud under established trading laws. Now under custody, investigators have doubts whether Jerome Kerviel acted alone. If found guilty, Jerome Kerviel may face a 5 - year prison sentence and hefty fines. Since the incident happened, ordinary bank depositors around the world – i.e. you and me – now doubt whether commercial banks and related financial institutions can do their part in solving the current “financial turbulence”.
For as long as I can remember, banks are seen as “agents of economic progress.” This is so because in school our teachers had instilled in us that if we save our money in banks - as opposed to stashing it in our “secret cookie jar” - we will be contributing to the economic progress and welfare of our nation. But recent events, like the Société Générale bank “fraud” case introduced a worm of doubt on everyone’s perceived trust between their money and their bank.
As of late, top economists had been pointing their fingers on the culture of “savings disparity” as the primary cause of the US credit crisis that is now threatening the global economy. These economists point out that on average, typical Americans save an equivalent of about 10% of their annual income, while in China its 50%. The prevailing wisdom about the role of banks on a nation’s / state’s economy lead the economists to conclude that the phenomenon of “savings disparity” is the overwhelming reason why – at present – the US Economy is weakening. While China’s remained strong despite the “bad decisions” made by US banks and related financial institutions that lead to the credit crunch and sub prime mortgage crisis. But since – taken as a whole – the global economy is a relatively complex dynamic system that’s continuously in flux, only time will tell if the Federal Reserve chairman Ben Bernanke and the Bush Administration’s resort to John Maynard Keynes – style economics. Like the 145 - billion dollar “Economic Stimulus” package that will supposedly prevent the US Economy from sliding into a recession. Or should everyone of us prepare for a repeat of the “Banking Panic of 1857”, or the draconian credit control measures of the Roosevelt Administration that lead to the “Bank Holiday” of March 4, 1933. Just remember what John Maynard Keynes wrote early in his career: “In the long run we are all dead.”