The question being asked by some in the markets is: was the Fed duped into a clumsy and panicked move by the clean-up operation for Jérôme Kerviel’s mammoth losses for the French bank?
There are many prepared to believe that, without SocGen’s huge derivatives sales, the mood in the stock markets would not have been half as bleak.
“It is now clear that the Fed was panicked into a 75 basis point rate cut by the actions of a rogue trader and the bank’s unwinding of his positions,” said one London-based hedge fund manager. “The action also clearly suggests that their French and ECB counterparts did not tell them what had happened at SocGen.”
Others point to circumstantial evidence to show that a market rout was well under way and being fuelled by entirely different means.
SocGen has said it began unwinding those bets on Monday. This is thought to have amounted to about 10 per cent of the volume on Monday, or about €25bn.
Stock markets in Asia and then Europe certainly suffered but Asia was already down heavily before SocGen began jettisoning those trades, which included no Asian exposures. SocGen itself does not believe it contributed to the market falls.
“It’s not possible that our covering operations contributed to the market’s fall,” Philippe Collas, the head of asset management at the bank, told Bloomberg.
The real fear, some in the market believe, was over a potential collapse of the little-understood bond insurance, or monoline, sector.
Fitch Ratings’ downgrade of one of the largest operators, Ambac, robbing it of its crucial triple-A rating, came late on Friday, first hitting the newswires at 2.25pm New York time.
Leading US insurers and other financial stocks were hurt in afternoon trading and the S&P 500 ended 0.65 per cent down on the day – but Europe and Asia did not have time to digest the news until Monday morning.
“The idea that all this was caused by one trader’s mistake is very convenient but there are worse things out there,” said a senior European investment banker.
SocGen selling into a falling market probably made things worse – for the market and SocGen.