Sarkozy says finance system "out of its mind"

NEW DELHI (Reuters) - French President Nicolas Sarkozy demanded changes to the running of international financial markets on Saturday in the wake of the fraud scandal at Societe Generale, which cost the French bank some $7 billion (3.5 billion pounds).

“We have to put a stop to this financial system which is out of its mind and which has lost sight of its purpose,” Sarkozy said on the second of a two-day visit to India.

“The point of a financial system is to lend money for economic activities, which, in turn, generate profits,” Sarkozy told a gathering of French nationals at the French embassy.

“It is not to go and speculate on different activities which create enormous flows and profits in a few hours,” he added.

“If one can make profits in a few hours, one can also make gigantic losses in a few hours as well. And it is time to realise that (we need) to insert a bit of wisdom into all these systems,” the president said.

Societe Generale said this week a rogue trader hid “massive fraudulent” positions in 2007 and 2008 on European equity market indices, which left it nursing 4.9 billion euros (3.6 billion pounds) of losses after deciding to unwind them in wildly turbulent markets.

The French government was only informed about the massive losses on Wednesday, but a source at the Elysee presidential residence said Sarkozy himself was warned of the problem on Tuesday.

Ministers have expressed anger in private about the delay in informing the government.

Sarkozy is due to hold talks with British Prime Minister Gordon Brown and German Chancellor Angela Merkel on Tuesday to discuss ways of improving the transparency of financial markets following the subprime credit crisis.

“I believe in the market economy, I believe in free trade, but I want a type of capitalism ... where more place is given to the entrepreneur rather than the speculator,” the president said on Saturday. “Speculation does not create wealth.”

“It is now time to put transparency and prudent new rules into the global financial system ... and to promote lending money to businesses and to those who create wealth rather than to those who want to buy in order to tear things apart and speculate,” he added.

Reporting by Emmanuel Jarry, writing by Crispian Balmer; editing by Tony Austin