Traders, psychopaths and other financial market animals

Powerful, influential but remorseful, both Wall Street and the City of London cannot wait to see past the latest controversy a young wannabe trader sparked this week, courtesy of BBC News 24. Alessio Rastani’s agitated speech about his dream of a global economic Armageddon is now hailed by many as proof that the financial industry has become a cruel machine in the wrong hands.

LONDON | After scarcely a few hours, once the disturbing and exhilarating dialogue between Alessio and BBC News 24 presenters had been aired, the British broadcaster’s business editor Robert Peston sounded somehow disquieted on Twitter:

“People telling me trader isn’t genuine. Am trying to find out how BBC got him & who he is. But he says what traders say privately to me”

Unfortunately, Peston was late, as he had already commended Alessio’s appearance to his almost 83,000 followers.

“This trader who was on BBC News y’day is a must watch, if you want to understand the euro crisis & how markets work”

And Alessio’s words were listened to, indeed. A euro in ruins and a world strangled by economic depression would be for any stock trader, he said, not a perfect storm but a heavenly dream. A unique opportunity to make money, a rare and golden chance to reach personal riches while millions of people are left unemployed and destitute.

By the following morning, the London newspapers had the harmless but strident profile of Alessio uncovered.

“Instead of operating from a plush office in Canary Wharf Mr Rastani works and lives with his partner Anita Eader in a £200,000 semi in Bexleyheath, south London. The house, complete with a mortgage from Royal Bank of Scotland, belongs to her not him.

“He is a business owner, a 99pc shareholder in public speaking venture Santoro Projects. Its most recent accounts show cash in the bank of £985. After four years trading net assets are £10,048 – in the red.

“How a man who has never been authorised by the Financial Services Authority and has no discernible history working for a City institution ended up being interviewed by the BBC remains a mystery.”

What Alessio had bragged about on television were his aspirations; what we now hear are his failures, instead. He dresses in the strict City code, he uses the parlance of the professionals and charges his assertions with litres of capitalistic testosterone: they repeat that he is an amateurish clown and yet, would proper traders feel identified with his performance?

THE REAL DRAGONS

Saint George may be England’s saint patron but the dragon is the City of London’s emblem. The beast, comfortably seated on a pedestal is the conspicuous and omnipresent sign that you find yourself in the Square Mile.

We asked on Linkedin’s virtual Square Mile whether Assio’s rants echoed their own thoughts, even if only the dark side of them [emphasis is ours].

M. Hall: “He acurately describes one philosophy towards investing in the global markets. The trader mindset is simply one of anticipating the direction of the market and being on the right side of the trade. A value investor looks at recession as an opportunity. If your portfolio is balanced you can always use a tactical overweighting of certain assets to capitalize or defend in a particular market. The comments about GS were surprising but not unfounded.”

M. Piglia: “Not from a human point of view… but I keep the two things very separate. I have a fiduciary duty from my investors to be on the right side of a trade as much as I can… and my living depends on that. If you mean I think that there will be a Depression or not…I think he is even optimistic…we ARE in the “Great 2009 Depression” still. But I have neighbours, I live in a community, I can see the hardships…to profit from having seen the outcome of something when everyone refused to believe and the news and reporters were feeding us Kool Aid, doesn’t let me feel guilty….but doesn’t stop me to help others get through. I make an honest living, an upper middle class income, not obscene sums from my work, I don’t flash wealth around, I am not a banker who gambled and then went to cry to the taxpayer for being rescued and keep my unfair and not-gained bonus. Ask the same questions to Jamie Dimon when he barks that Basel III rules are anti-American because they can finally constrain his unfettered greed…HE is Anti-America, or , better, a danger for mankind. Not Rastani…who is an unknown amateur, or us who try to surf markets more and more rigged…”

A. Kolodovski: “Regarding the upcoming market crash and the fate of the Euro – yes. Regarding his arrogance and GS rule – not at all. They are a big fish in a crowd of market speculators, but that’s not ‘the world’.”

T. Burrell: “I have been involved in the markets, in some capacity, for over 20 years. In that time, I have encountered an endless number of traders that wrongly attribute their success to their own abilities. Many take unsubstantiated risks that just happen to work out well. Some may even retire without ever having been exposed to their own flawed behavior.

“People assume that the average trader makes obscene amounts of money per year. The truth is the average trader loses and is out of business in less than two years. Yes, there is a distinct correlation between longevity and profitability. But the best traders are the ones that understand risk to a degree that confounds most people, including other traders. And many traders never realize that they are actually taking remarkable, yet almost invisible risks. Rastani is clearly in this category.

“After having heard the BBC comments, I googled him and looked over his website. He is selling his expertise to others. What makes him any different than the 100’s of other advertisements I have seen over the years from people selling the perfect trading system? Nothing.

“After having read his own website and the advice he is offering, added with the comments on the BBC, I believe that he takes risks that he is not aware of taking. I would say that he is not so much an expert trader, but rather a guy who is really good at a particular video game.

“A risk manager, who has been in the business for a long time, would have been an appropriate interview subject. Ironically, the same person would understand that the combined factors of the needs and motives of the reporter, the format and length of time for the interview, and the heightened negativity surrounding the subject matter, would have made a clear and positive response so improbable that they might have declined the interview. A guy trying to sell his own expertise would, and quite obviously did, jump at the opportunity to increase his own web traffic.

“The comments are unfortunate, and mostly baseless. The financial expert that they chose to interview is, in fact, a disingenuous nobody. Now he is getting his 15 minutes of fame, and there is more political fallout.”

T. Daltorio: “As someone who has been involved with the financial markets since 1981, do you know how people I’ve seen come and go? I’ve yet to meet a ‘trader’ who actually makes money over the long term.”

Perhaps, the question should rather be: what makes individual stock traders and brokers burn millions, billions in the financial markets’ vanity fire with criminal schemes? Perhaps, the latest names to come up in the list of rogues, Kweku Adoboli and Jerome Kerviel, could provide us with a response.  This, nonetheless, won’t stop others from thinking that the answer is just in front of our eyes and it has been there for a while.

SCIENTIFICALLY DEMONSTRATED

As part of their pursuing an M.B.A. at Switzerland’s University of St. Gallen, forensic expert Pascal Scherrer and Thomas Noll, who is a chief officer at Zurich’s Penitentiary Poschwies, teamed up to study the behaviour of 28 traders. The brilliant, and slightly sarcastic, twist was to compare their reaction to those (to the same situations traders were confronted with) of sufferers from psychopathy.

Even Barron’s admits that

“the study raises rarely discussed issues about the psychology of successful trading.”

The conclusions of this peculiar paper are not nice.

“According to a new study at the University of St. Gallen seen by Spiegel, one contributing factor may be that stockbrokers’ behavior is more reckless and manipulative than that of psychopaths.”

Common traits? Superficial charm, above average intelligence, unreliability, no sense of responsibility, insincerity, antisocial behaviour, impulsiveness, failure to learn from experience, poverty in lasting emotions, inability of seeing oneself as others see him. And needless to point out, impersonal sexual life.

“Domine dirige nos” is the motto of the City’s ferocious pet but the master that assigns duties to the rows of traders who cross its streets each morning, afternoon and evening ─London’s time zone allows you to follow market sessions from Wall Street to Madrid, Paris and Frankfurt, and attend to the opening of Asian markets─ is not an omniscient force: it’s the giant international banking institutions, mutual funds, the largest fortunes in the Americas, Europe, China and the Middle East, and the global corporations, not to mention the investment portfolios of governments, from federations, states and municipalities.

The pressure, rivalry and stress at a time of capital draught are almost as breathtaking as the massive glass-and-steel towers which house traders’ offices.

In 2004, Robert Hare, professor at the University of British Columbia, noted in his investigation into the dynamics at the working place in corporations that a tough environment induces professionals to become “social predators. Where power, prestige and money accumulates, controlling and predatory attitudes emerge from stress, which is the main cause of the deteriorating mental health of the workforce.”

Alessio Rastani could well be a reflection of something gone rotten in ordinary brokers. But then, what has made ​​them so? Exactly.