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Sinapore Nostalgia

Postby ksl » Thu, 08 Mar 2007 2:30 am

Nick leeson at it again, but this time with his own money

:shock: He really made my day crashing the bank, although we all suffered in the end :lol: come rain or shine, they want their $$$ :roll:

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Postby Plavt » Thu, 08 Mar 2007 3:14 am

I can't say I know much about Nick Leeson other than what is in Ksl's post and know nothing about insider trading. However it has been suggested he wasn' the only one and is merely the 'tip of the iceberg', any comments enlightenments. I am sure Huggybear will be one of the first. :P

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Postby huggybear » Thu, 08 Mar 2007 8:19 am

hah. ok...

well insider trading (which is illegal) is when you are given information that is private and confidential (not public) and you trade based on that information. I guess on its own "insider trading" really isn't that bad, but to protect the integrity of the marketplace and to prevent average people from getting burned, they criminalized the offense. would you speculate in financial markets if it was all rigged? Probably not, and thus companies would not have another source outside of traditional bank loans to raise capital (cash).

As far as Nick Leeson, he wasn't speculating in currencies, he was speculating in Nikkei Futures. And he wasn't engaging in insider trading (otherwise he wouldn't have lost $1.4 billion). Sure Nick was guilty of speculating too much, but Barings was guilty of stupidity also for giving someone so much power without auditing what he was doing. In most normal banks (even at that time...) you had separate managers. One person does the trading and tries to make money while a second person is monitoring the position and booking the trades in the system (or on a ledger). Then you have a third person who literally processes the trade, wires the money to the other counterparty etc. each person has a seperate manager they report to. Well barings in their infinite wisdom made Nick Leeson in charge of everything, and well power corrupts.

So Nick Leeson made spectacular bets in the Nikkei futures...for the most part he bet that the Nikkei would rise...he was massive and everyone knew his position and everyone knew when he was trading. Well, he took a massive position to go long the Nikkei and the earthquake hit and markets plunged. Nick needed to cover his positions and buy back his positions but again, everyone knew what his position was and everyone knew what he was doing, so everyone then was showing him crap prices and he refused to liquidate his positions hoping the markets would come back. well at this point everyone knew he was in trouble (again cuz they didn't work at stupid banks that have no risk policies in place) and everyone was selling the crap out of the Nikkei as a result.

well all the selling kept making the losses bigger and bigger and everyone kept selling and selling cuz they knew he had to get out of the position, nick was going to have to sell a ridicuous amount of Nikkei futures. Eventually nick panicked and literally ran away. Barings just liquidated the positions and lost $1.4 billion USD, and everyone else made a fortune (thanks nick!!). Sad to say that about six months later barings would probably have made a nice $600 million profit...but that's how the markets work. It's like sharks. when they smell blood in the're dead. but since then there have been other spectacular blow ups: Long Term Capital Management (billed as really smart people), Amaranth Advisors, and a variety of other ones a bit smaller that blew up.

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