Friday, April 20, 2007

Who is Nick Leeson?

Nick Leeson was the young trader who single handedly destroyed Barings Bank, one of the oldest merchant banks in England. As noted on the Wikipedia, America didn’t buy the Louisiana Purchase from Napoleon; we bought it from Barings, the bank that underwrote the sale.

Leeson managed to convince Barings that he couldn’t be make a mistake, and consequently oversight was suspended on Leeson’s trading activities. He then proceeded to loose $1.4 billion(!) through speculation in futures contracts. By the time anyone realized what had happened the bank was already bankrupt. The whole collapse happened within the span of only a few days. When it was over, one of the most respect financial institutions in the history of the world was sold to a competitor for the nominal figure of only $1.

Nick Leeson is a cautionary example of how one man can make a difference – the wrong difference. And how, even the oldest, soundest, and seemingly most solid institutions can be destroyed through na├»ve over confidence. More on this in a moment…

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