Jan 27, 2008

Betting $73.5 billion

The 31-year-old trader who lost $7.16 billion for his bank apparently hacked into computers and used several "fraudulent methods" to bet $73.5 billion on financial markets. His bets, of course, didn't payoff. But if they had he could have presumably earned his bank billions in profits and would have been considered a financial genius. There must be a few rogue traders out there who used fraud to bet billions and then won their bets.

Nick Leson, the rogue trader who lost his bank $1.3 billion, only ended up getting sentenced to 6.5 years in prison, and this was in Singapore! I bet the French trader who recently bet $73.5 billion ends up spending less than five years in jail.

So let's say you work for an investment bank that has poor internal controls. You realise that you could illicitly bet billions of your bank's funds. If the bets turn up winners you will become a huge success and have a realistic chance of retiring a billionaire. If the bets go bad you will spend around 4 years in jail. If you have enough confidence in your own investment skills, it might well be rational for you to bet the billions.