Does anyone believe the multimillionaire financial geniuses at SocGen when they say they have suffered some remarkably bad luck? They lose €4.9 billion (HK$57 billion), thanks to an employee gambling on European equity markets with about €50 billion. The explanation offered by Daniel Bouton, the bank's chairman, in his letter to shareholders is that there were a "few gaps in procedure". The guy at the centre of it all managed to squeeze €50 billion through those gaps.

 

There are two possibilities here. Either the guy responsible, Jerome Kerviel, is a genius who single-handedly outwitted the entire risk management staff, or he is just an average guy who didn't quite grasp the significance of what he was up to and was able to get away with it because the risk guys were going through too much Bordeaux at lunch.

 

The SocGen risk management department is unsurprisingly pushing the genius theory. Risk management is a big deal for banks, particularly banks with a lot of traders. Traders sit around with other traders, staring unblinkingly at their computer screens and betting large amounts of other people's money on whether the numbers on the screen get smaller or larger. At the end of the day, when they turn out to have backed a winner, they give one another high-fives, get in their Porsches and drive home to their flash apartments that they paid for in cash with their last bonus.

What they are not is trustworthy. Hence the invention of risk management: to keep an eye on these guys. It's a simple formula: the trader bets €1 million that the market is going to go up on Monday. It goes down, so on Tuesday he bets €2 million that it is going to go up. It goes down again, and so Wednesday it's €4 million and so on until you get to €50 billion.

Now, what management would like the trader to do, when he gets to, say, €100 million in the hole, is call risk management. But having the confidence to make the bet in the first place, which is an essential quality in order to be a trader, is precisely the reason that the trader is not inclined to admit he has screwed up. He would rather try to trade his way out of trouble - perhaps with a €200 million bet.

Management, of course, know this and, accepting that traders and their behaviour are a necessary evil, they put risk controls like trading limits and exposure limits in place to limit the damage the traders can do when things don't turn out. But they didn't manage the risk of Kerviel.

And of course they didn't. He's not a trader. Look at the photos of him on the internet - no pin stripe suit, no smart-alec grin, no model girlfriend.

And if you've seen the document that purports to be his resume, look at his hobbies - judo. Not golf, not motor-racing, not polo. And most pertinent of all, he didn't stand to make any money out of this.

No, he's not a trader, and that's why it took so long for him to get caught. He used to run the computer systems that are designed to catch people like him. He's an IT guy.

Worse than that, he's an IT guy who has somehow escaped the IT department and entered the real world. When they are in their own departments, IT people are limited to simply annoying the rest of us by making us change our 15 different passwords once a month, continually altering software that we'd taken years to learn, and generally making us feel stupid when we telephone them to ask how to set up a printer.

But if IT people start moving into other departments, their skills present enormous danger. Kerviel has demonstrated how much damage an IT guy can do in a trading department, but imagine if they end up working at airlines or defence departments. Instead of Mr Bouton explaining the loss of some cash, it will be someone else explaining that due to "a few gaps in procedure" there seem to be some 747s or submarines that have gone missing.

Of course, there already are IT people in airlines and defence departments, and everywhere else. Kerviel is just the tip of the iceberg and it will not be long before IT people take over the entire world. And they would want to, since they think that all non-IT people are just a bunch of morons interfering with their systems. Once computers and IT systems finally infiltrate every aspect of human existence (which will be in about six months) the IT people will seize control.

Banks' risk departments everywhere are about to start implementing new rules, reducing trading limits and generally making life miserable for traders in response to SocGen's catastrophic stumble. But they are looking in the wrong direction and need to focus their attention on the real danger.

I've been trying to alert our own risk department myself but I can't log on to my e-mail and for some reason no one is picking up the phone at the IT Help Desk.