Saturday, 9 January 2010
Hedge Trimming – Vietnamese Style
There's a fascinating story coming out of Vietnam at the moment.
Luong Hoai Nam, a senior Vietnamese executive from Jetstar Pacific Airlines, was arrested on January 7th in connection with the loss of $34 million US dollars when some fuel hedging transactions went badly wrong. Qantas subsidary Jetstar Pacific is majority owned by State Capital Investment Corporation (SCIC), an investment arm of the Vietnamese government.
In addition, two Australians, Qantas executives Daniela Marsilli and Tristan Freeman have not been formally charged but were forced to spend Christmas in Vietnam and are still prevented from leaving the country. They apparently were involved in the transactions which are the subject of an enquiry.
It’s doubtful that the story would have made the Australian media if locals hadn't been detained, and the involvement of the Australians doesn’t get a mention in the report in Vietnam Net.
For those of you (like me) who are either bored or disinterested in the shonky carryon that masquerades as high finance these days, this explanation by Henry Blodget writing in Slate might be helpful. It’s interesting that it was written in 2006.
The article is called - Risky Business The real reason for the latest hedge-fund disaster.
An aggressive trader places risky bets, gets lucky, and makes himself and his bosses rich. The bosses, eager to keep the gravy train rolling, let the trader make bigger, riskier bets (and, in this case, give him a reported $75 million to $100 million bonuses nd his own personal trading floor). To head off concerns that they are taking big chances, the bosses extol their risk controls and "multi-strategy" expertise. Then the trader makes some huge, risky bets, gets unlucky, and loses $6 billion in a few weeks.
So basically, extravagant risks are taken with other people’s money, and sometimes it all goes bad.
I love the spin the Australian has put on the Vietnamese story -
But there have been suggestions the arrest may be part of a wider backlash from old-school communists unhappy with the partnership with private enterprise.
If by “private enterprise” they mean the freedom to throw away hundreds of billions of hard-earned Dong*, then I too must be “old-school”.
Having lost a six-figure sum in the last twelve months in my (very cautious) super investments, as a result of the GFC, I’m old-school enough to suggest that it’s not OK to take risks with other people’s money, and when it all goes pear-shaped, to pocket your bonus and skedaddle.
I’m a lot better off than the poor sods who were caught in the Storm Financial scam – but then I wasn’t looking for extravagant profits, nor was I taking much risk. Nevertheless I was caught in the collapse, as were many other self-funded retirees. My balances are heading up again, but I doubt that the shonks (most of them on the other side of the Pacific) have taken any pain.
I’ve flown domestically (Vietnam Airlines) quite often in country. They come across as a very professional outfit, and their fleet is state-of-the-art and pretty new – mostly Airbus A321. The only exception was a trip from Da Nang to Hue on a rather noisy ATR 72. Maybe all ATRs are noisy.
There’s a great deal of money to be made catering to Vietnam’s burgeoning tourist industry. The Vietnamese are easy going, hard working and very entrepreneurial, but they can’t abide shonks.
The action of the “Communist” administration of Vietnam is quite instructive when it comes to dealing with crooks. They could teach a thing or two to governments in this country and the USA as to how to handle “masters of the universe” who lack any form of moral compass.
It’s unfortunatel that a couple of Australians were caught up in it. Having said that, iIf they behaved ethically they won't have anything to worry about.
*1 AUD = 16887.9871 VND - 09.01.10
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