As with most great Risk accidents – this one has gone full cycle.
Starting with a Market Risk oversight failure (the Front Office) by the delta one desk, the trades sailed right by Market Risk Control (hey -our VaR calculations were accurate, its just that the position was wrong) and most likely abetted by a Credit Risk issue, who’s system was either bypassed or used fraudulently to cover or hide the margin calls (hey these were ‘riskless trades”) and finally whiffed on by Operational Risk Control, which allowed the fictional trades to be booked & never properly verified. The net result was a financial hit, although large, was not as bad as the damage done to its Reputation. While the final details are not yet know, its already cost the company its CEO and aftershocks to its Investment Bank which it may or may not survive.
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