The Hindu Business Line : Bringing markets to a boil

And, as the worldwide financial media engine is trained to do, immediately experts from all corners descended on TV studios to give their take on how this happened and what this meant for mighty things like governments, and simple things like you and me.

Some said that it was all because of the situation in Pakistan. Others said that the unrest in Nigeria was making traders edgy. Geo-political tensions was a term being bandied about with wild abandon.

Also, winter was upon us and this meant that thousands upon thousands of cold people all the way from the US, through Europe, to saddi Dilli were going to need heating. Which means more electricity. And, ergo, more fuel to power them power stations.

The reality

So it all seemed to fit nicely into a neat causal theory with enough redundancies.

And what did this mean for the global economy? The $100 barrel had been looming on the horizon for months. The nightmare had now become reality.

“Huge impact on global inflation!” was what an analyst out of Hong Kong said.

The BBC actually interrupted a news bulletin to report the news in grave tones.

By the end of the day it seemed as if economic apocalypse was upon us. The survival of the human race itself seemed in question. Suddenly, in the greater picture of things, my outstanding bills no longer seemed a problem.

Alas, later that same day, I discovered, courtesy the BBC Web site, that the entire $100 scare may have been generated by a sole trader somewhere on the floor of the New York Mercantile Exchange.

And no. He didn’t do a bad deal on purpose. He simply wanted a shot at lasting fame. So he could tell his grandchildren that he was the man who finally pushed oil to a hundred bucks a can. And not Gaddafi or Chavez or a Saudi Arabian prince as most people might have assumed.

“My grandfather won an Olympic gold!”

“So? My grandpa bought crude oil at $100 a barrel!”

“Why would he do that?”

At which moment his grandchildren would begin to hate him intensely for not doing something more worthwhile with the $600 he lost on the trade. Oh yeah. He burnt up cash on the trade. He bought oil at one hundred and, satisfied at his achievement, immediately sold it. Now technically he isn’t a rogue trader. Apart from the fact that for a whole day the business media went haywire, no one ‘got hurt’ from his trade.

Yet, somehow, if you ask me, there is a certain glamour associated with this rogue trading business, if you can call it that. All this financial cloak-and-dagger business. A certain mystery goes with the amount of damage a single individual can cause if he so wills it. Or manages to, through astronomical incompetence.

Blowing up ‘OPM’

Now we all know Nick Leeson of Barings Bank fame. He managed to bring a prestigious financial institution with a 233-year old heritage to its knees. But even he only managed to lose $1.4 billion.

Relatively, of course. I have no intention of belittling $1.4 billion amount. Of course not. I have deep deep respect for it.

But that begins to pale when you think of Yasuo Hamanaka of Sumitomo Corporation. In 1996, Hamanaka, once known as Mr Five Percent because that’s how much of the global copper market he controlled, caused losses of merely 2.6 billion big ones for his company. He spent eight years in jail for that.

Not big enough for you?

Giancarlo Parretti was no trader. But he still managed to borrow $5 billion from Credit Lyonnais and lose it all in fraud and ill-advised loans to Hollywood studios. Yet even this is not the ultimate when it comes to blowing up OPM. (cool lingo for Other People’s Money.) Brian Hunter should be a celebrity if you ask me. After raking in, some people say close to $100 millionin compensation annually, he then went and made some bad bets on the Natural Gas Futures market in 2006. He only lost a paltry $6.5 billon for his employers, Amaranth Advisors.

Admit it. Just the power to cause so much damage is so irresistible. And while we mull over that moral question, let’s hope that oil prices stay sane and no one else decides to create history.Though I hear there is a nice little all-time high to be made in nickel or some such metal.

Anyone have a few hundred dollars and a dream?

(The writer, an alumnus of IIM-A, was a management consultant before quitting to work as a freelance writer, author and general handyman. He blogs at www.whatay.com)

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