We recently commented at length on the issues which arise when traders and portfolio managers are put in charge of pricing their own portfolios. In particular, we highlighted that the the institutional world has already given us plenty of examples of what could happen in a hedge fund if the PM's are in charge - notably Credit Suisse's multibillion dollar loss related to CDO valuations.
As an addendum to our comments, we were unsurprised to see the same thing happening again: this time it's Merrill Lynch. According to Bloomberg, the bank is "probing one of its trading desks in London and has suspended a trader after discovering he may have overstated the value of some of the bank's equity derivatives." The damage? Just about 10 million pounds, or $20 million.
Interested readers may also want to check Greg Newton's post on the same topic at NakedShorts. As Greg says, how many times does this has to happen before someone...
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