I completely agree with your overall point, but in the OCM anecdote there was a near criminal level of incompetence on OCMs side as well. Their business became a currency swap business, literally they were not profitable without it, yet they did not know what a swap was.

Surely the client in such a deal should be sophisticated enough to do the calculation themselves and realise that the trade was never going to make them any money?

From the article, the client was facing bankruptcy and would probably have signed anything that - I´m guessing Goldman Sachs, since apparently none of the big legal firms was prepared to touch the case - put in front of them.

But even if that wasn´t the case, a lot of finance is essentially "robbery by math", by people who can do complicated calculations and figure out ways to route things around the financial system with weird financial instruments, from people who can´t, and who also have the Donald Duck $ sign in front of their eyes blinding them.

For that example the premise would then be that an organization large enough to throw away $48 million a year is incapable of seeking a sophisticated agent that will act in the interest of the organization.

Maybe the problem is that such an agent doesn't exist. But if such deals are really commonplace it's a pretty sweet opportunity for there to be no one taking advantage of it.

Blatant cancelling issues, one would certainly hope so - but the original structure that got them into trouble was much more problematic. (Similar to some of the shenanigans within the US btw. that got a few counties into trouble.)

fwiw - the ability to think through that kind of structure appears to be a lot commoner in computer scientists and similarly trained engineers, than it does in economist/finance types - but even there, it´s not exactly common. You have to be able to juggle inverse foreign exchange relationships against some knowledge of trading and banking relationships within and between countries, and project over time. It´s a distributed systems problem if you think it through - and we all know how easy those are to troubleshoot.

Sure. Why not. If we make the assumption that fraud can't exist, we might as well make the assumption that the principal/agent doesn't exist, corruption doesn't exist, naivete doesn't exist and clients who miss minor details don't exist.

If they committed fraud then the client could go to the police, if they simply didn't read the contract they were signing up for then that's their fault. NB Obviously this doesn't apply to consumer contracts, but if you are making trades that big presumably you should know that you are swimming with sharks and act accordingly.

First thing I would do if I worked for OCM would've been to plug that formula and some historic data into Excel. That's gross negligence if nobody did that.