Ramalinga Raju and Bernard Madoff need to answer charges of fraud that are, in a sense, more to do with individual sin. Jerome Kerviel, whom a court sentenced to three years’ jail on Tuesday for breach of trust, has more to do with systemic sin.
This rogue trader with the French bank Société Générale bet billions single-handedly, costing the bank $6.8 billion (Rs30,396 crore today) in early 2008. But Kerviel says he let “himself be caught up in the system” of excess, and ended up at the heart of a “big banking orgy”.
Kerviel’s is hardly the only trading scandal that showcases poor restraint: Take Howie Hubler, the mortgage bond trader whose subprime bets cost Morgan Stanley $9 billion in 2007. All of Wall Street was caught up in the orgy.
If regulation is lax and credit cheap, risk-taking of this kind will continue. And given human nature, some of it is sure to walk the thin line that separates it from fraud. Policymakers must understand that there are sociological effects to being toothless.