SAN FRANCISCO -- The French government should be honoring Bank of France Governor Christian Noyer for saving Société Générale from certain bankruptcy in the current rogue trader scandal, not criticizing him, as some high government officials have done. “Loose lips sink ships” is received wisdom in central banking circles. But if President Nicolas Sarkozy’s team in the Élysée Palace had had its way, Noyer would have immediately informed the government of Société Générale’s troubles.
Had that happened, there would have been an unacceptable risk that the news would leak to speculators before Société Générale had a chance to liquidate the extraordinary large stock positions that Jérôme Kerviel had amassed, presumably without the bank’s knowledge. The loss for Société Générale could have been far higher than the €5 billion it is reported to have incurred.
Speculators could have “front run” the bank in the markets, selling short, driving equity prices down, and forcing the French financial institution to sell into a bottomless pit. Is a forced bankruptcy in extremely fragile global financial markets what the French government wanted for Société Générale?
How can President Sarkozy, who has repeatedly attacked financial speculators, question the judgment of the very man who, by knowing how to keep his mouth shut in a crisis, thwarted them?