Lancing The Boil

Steve Cohen almost certainly didn't set out to be the biggest nor the most successful insider-trader in the history of the world. No one does, or could do, that with the requisite premeditation. Life has too many twists and turns, and in such a business, there is no direct line from 'A' to 'B'. Yet, here he finds himself. The most successful. But still defiant.

I don't know him. He may be a good guy. His first wife (and those he's fired) probably think not. His second (and those upon whom he's lavished generously with money, more likely harbour a different opinion. I am, in fact, not interested in this aspect. But I do wonder at the genesis from ordinary talented trader to systematic abuser of inside info who, despite every indication to the contrary, defends a reality divorced from the one most informed observers share. Maybe he must because he has no alternative. Maybe, he believes his own version of reality. He doesn't appear to be a monster in any sense. But there is, nonethless, a nagging obliviousness that is screaming for precedence if not scrutiny.

When I  (from my distance as a detached practitioner) ponder his actions - based upon email, IM, recounted and transcripted conversations - regarding his decision-making process on the blighted trades cited by authorities, I cannot help but think of the bid-rigging scandal perpetrated by Marsh Mac, and detailed in State of NY vs. Marsh Mclennan. Read it. Here, ordinary people - the ones you see at PTAs and on the sidelines of the soccer pitch - break more or less every single rule and law violate every ethical tenet related to business conduct and markets in pursuit of ripping off the end client by systematically managing the pricing quotes to insure an uncompetitive, higher margin environment for all. It apparently went on for so long and became so ingrained, it became the standard operating procedure for the broker to set the price (rather put it out to competitive market tender), get an above-market quote the firm who will be awarded the business, and a way-above market "b-quote" from the designated loser who - in turn - would be the deserving recipient of the next piece of business at similarly inflated margins if they played the game cooperatively. It seems from the complaint, and those in the market, that after a while, no one saw anything wrong with it. It was, in those lines of business, just how it was done. The perps were ordinary, family men and women, however depraved was their sense of obligation, fairness, or fiduciary duty to their clients. They surely didn't set out that way. They likely stumbled upon  it, and it worked. Their clients not noticing. Their fees higher. Their underwriting counterparties fatter and more profitable, and so in their debt. And it was easy to the point where everyone involved knew what a b-quote was, and their obligation when asked for one.

"The edge" or other pseudonym SAC had for insider trading, eerily resembles 'b' quotes. It was SOP, so much so, SAC, like Marsh, became brazen - ruminating amongst themselves in IMs about who's got the better inside information edge. And (before Level Global, Raj, and the spotlight was shined) this discussion (on recorded media) was NOT with respect to feigning attention to the legality or appropriateness of use, but solely on the establishment of which was more potent and therefore reliably useful in pursuit of the edge. It had, by then, become SOP. Apparently without fear of retribution by authorities. People, it would seem, including Cohen, constructed the intricate scaffolding to enable, support, cultivate and legitimize what in ethical terms is very very wrong and bent - cultivated to the point that in THEIR minds their transgression was diminutive, victimles, that perhaps they were entitled due to their tenacity andf cleverness. Who knows the precise narrative one makes to oneself...

America has a strange relationship with culpability. They rarely do it. Legal advice seems always to suggest to deny it. Claim innocence. Blame others. At Marsh Mac, only the infantry was sacrificed. No Generals went down. And Wall St. throughout the crisis (excepting Raj) is little different. We see the same with Fab Fabrice. But with SAC, there is an apparent determination to make a more meaningful statement. Make no mistake, this is not about market efficiency, but about the appearance of fairness. And the biggest sin of SAC, like Marsh Mac, was to go so far down the perditious route, there is no recourse for authorities but to use every means within its grasp to lance the ethical boil, so fat, ripe, and overgrown...