Rogues of Wall Street. Waxman Andrew

use of the bank’s computers, resulting in losses valued at €4.9 billion. http://www.businessinsider.com/how-jerome-kerviel-lost-72-billion-2016-5.

6

Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management (New York: Random House, 2000). Lowenstein chronicles the rise and fall of the illustrious hedge fund Long-Term Capital Management.

7

LIBOR is a benchmark rate that some of the world’s leading banks charge each other for short-term loans. It stands for London Interbank Offered Rate and facilitates the calculation of interest rates on various loans throughout the world. LIBOR is based on five currencies: US dollar (USD), euro (EUR), pound sterling (GBP), Japanese yen (JPY), and Swiss franc (CHF), and provides seven different maturities of each one: overnight, one week, and 1, 2, 3, 6, and 12 months.

8

G. Elton, The Practice of History (Waukegen, IL: Fontana Press, 1967).

9

According to the first shareowner census undertaken by the New York Stock Exchange (NYSE) in 1952, only 6.5 million Americans owned common stock (about 4.2 percent of the US population). By 1990, the NYSE census revealed that more than 51 million Americans owned stocks – more than 20 percent of the US population.

10

In the 1960s, finance's share of the GDP accounted for less than 5 percent of the US economy's output. By the 2000s, the proportion had risen to over 8 percent, fueled by a combination of middleman fees, for example, in asset management, and the credit explosion fueled by securitization (more of that later). The repeal of Glass‐Steagall enabled large banks to take advantage of these secular trends and bulk up through acquisition to provide services across the whole range of banking services, including retail, wholesale, asset management, treasury services, etc. Banking balance sheets of over $2 trillion came into being in the 2000s.

11

As interim Assistant Secretary of the Treasury for Financial Stability from October 2008 to May 2009, Neel Kashkari oversaw the Troubled Asset Relief Program (TARP) that was a major component of the US government's response to the financial crisis of 2007. Subsequently, as Chief of the Federal Reserve Bank of Minneapolis he has been an outspoken proponent of further reforms to manage risks posed by large banks. His most recent proposals made in November 2016 were covered widely by the press, including the article reference below: http://www.reuters.com/article/us‐usa‐fed‐kashkari‐idUSKBN13B1LD.

12

JP Morgan Chase agreed to pay $1.7 billion as part of a deferred prosecution agreement reached with the US Attorney's office for the Southern District of New York in January 2014 on charges that its failure to maintain an effective anti‐money laundering program helped to facilitate the multi‐billion‐dollar Ponzi scheme orchestrated by Bernard Madoff. The crux of the complaint by federal prosecutors was that the bank maintained the relationship despite internal concerns and red flags. These red flags were actually raised by the London Branch with the UK's Serious Organized Crime Agency but were not shared with the AML Compliance team in the United States. Whether that was because of misplaced concerns over potential noncompliance with data privacy laws in the UK if such client concerns were raised in another country is a troubling possibility. Be that as it may, much work has been done since then, to improve the AML program at JP Morgan Chase, including significant investment in systems and expertise. Information on these charges was reported widely and a good analysis can be found at the link to a DealBook NY Times article: https://dealbook.nytimes.com/2014/01/07/jpmorgan‐settles‐with‐federal‐authorities‐in‐madoff‐case/.

13

A credit default swap (CDS) is a financial swap agreement that the seller of the CDS will compensate the buyer (usually the creditor of the reference loan) in the event of a loan default (by the debtor) or other credit event. This is to say that the seller of the CDS insures the buyer against some reference loan defaulting. The buyer of the CDS makes a series of payments (the CDS “fee” or “spread”) to the seller and, in exchange, receives a payoff if the loan defaults. It was invented by Blythe Masters from JP Morgan in 1994. By the end of 2007, the outstanding CDS amount was $62.2 trillion, falling to $26.3 trillion by mid‐year 2010 and reportedly $25.5 trillion in early 2012. CDSs are not traded on an exchange and there is no required reporting of transactions to a government agency.

14

A good overview of the Wells Fargo scandal can be found at a number of sources. One good overview can be found at the Guardian newspaper web site: https://www.theguardian.com/business/us‐money‐blog/2016/oct/07/wellsfargo‐banking‐scandal‐financial‐crisis.

15

In finance, model risk is the risk of loss resulting from using models to make decisions, initially and frequently in the context of valuing financial securities. Losses can stem from not having the key data inputs, incorrect calculations and algorithms, inappropriate calibration of the model, and so on.

16

The rule disallowing proprietary trading was credited to former chairman of the Federal Reserve Paul Volcker. In the light of the 2008 Financial Crisis, Mr. Volcker believed that one of the causes of the crisis was the ability of investment banks to deploy the capital of customers in pursuit of speculative and risky trades. The objective of the Volcker Rule then was to prevent such activity in the future.

17

Rochdale Securities was a brokerage firm that went bankrupt in 2012 due to a loss on a single trade that was executed. The failure came since the trade's losses were beyond the capacity of the firm to meet.

18

In 2009, Societe Generale lost over $7 billion due to the activities of trader Jerome Kerviel. This remains the largest‐ever loss resulting from a Rogue Trader. One of the tactics used by Kerviel to avoid detection was to create false counterparties that would then be used to authenticate his nefarious trades.

19

In many ways the original Rogue Trader, Nick Leeson managed to bring down the storied Barings Investment Bank all on his own. In the early 1990s, Leeson was able to take advantage of his role as head of operations and trading in a satellite trading unit in Hong Kong to take on huge, unhedged positions that resulted ultimately in a spectacular loss for the bank.

20

Liars Poker by Michael Lewis chronicled his adventures as a securities salesman at Salomon Brothers in the early 1980s. The title of the book comes from the poker game that was played on the trading floor. Trading heads were in many cases the instigators of the games, a sine qua non for success in trading.

21

James Cayne, known widely as Jimmy, was the CEO of Bear Stearns in the years leading up to the 2008 Financial Crisis. He gained some notoriety in the press for his publicized participation in bridge tournaments during some tough times for his company.

22

Delta One is the name for the trading desk on investment banking trading floors for some of the more straightforward equity trading activities. Delta One is so known because of the one‐to‐one relationship between the trades and swaps being executed on behalf of clients.

23

VaR (value at risk) is the term given to risk‐management modeling methodologies developed in investment banks. The models developed under this methodology are intended to indicate the amount of value that would be lost in a day under given trading scenarios. The scenarios are normally developed on the basis of historical precedent.

24

Dodd‐Frank Act is the name for legislation passed following the 2008 Financial Crisis. Christopher Dodd and Barney Frank were the congressmen responsible for the legislation. One of the most expensive pieces of financial legislation ever passed, its intention was to prevent a recurrence of the type of financial failures that were perceived to be the underlying causes of the 2008 Financial Crisis and the deep recession that followed.

25

Clawback is the term used