Excellent piece from the Washington Post on the failure of management in the cases of rogue traders.
As history teaches us, there are no rogue traders; there are only rogue banks.
Here’s a news flash: If you issue credit, your working assumption must be that there are unqualified people who will try to borrow money from you. It is the job of every lending facility each and every day to separate the qualified borrower who has the capacity to service that debt from the unqualified borrowers who do not. This is why there is no such thing as a predatory borrower — banks must assume that all borrowers are predatory and protect themselves. This is why lenders — at least before 2002 – inquire about income, employment history, credit scores, other debt, etc., before making a mortgage loan.
Similarly, if your business involves the use of leveraged capital for speculation by your employees, then it is your job to know which, if any, of your people are not competent. It’s a simple mathematical fact that some of your traders will take losses; in some cases, enormous but manageable losses. Your job is to identify these people and move them to other professions.